Statutory redundancy pay 




Statutory redundancy pay is calculated using a statutory formula based on age and length of service, which awards a number of “weeks’ pay” based on normal working hours (section 220 and continuing, ERA 96).




This formula entitles employees dismissed through redundancy to: 




• half a week’s pay for each full year of employment when the employee was aged below 22;


• a week’s pay for each year aged 22 to 40; and




• a week-and-a-half’s pay for each year aged 41 or over.




The government website GOV.UK has an online ready reckoner for calculating statutory redundancy pay, available at: www.gov.uk/calculate-your-redundancy-pay.




The maximum amount of a week’s pay is subject to a statutory cap revised every year in April. It is currently £508 (April 2018 – March 2019). The maximum number of years of employment taken into account when calculating statutory redundancy is 20. The number of years is calculated by counting backwards from the dismissal date (section 119(1)(b), ERA 96). The maximum amount of redundancy pay after 20 years’ service is £15,240 (April 2018).




Anyone earning less than the annual weekly statutory cap receives redundancy pay based on their actual gross earnings. Where employees are paid less than the National Minimum Wage (NMW), a tribunal will order the employer to pay redundancy pay at the NMW (see Chapter 4). 


For anyone working irregular hours (as long as they can demonstrate two years’ service) redundancy pay will be based on the average pay earned in the 12 weeks leading up to the redundancy notice. Any weeks without pay are disregarded, and earlier weeks are brought into account up to a maximum of 12 (section 224, ERA 96). 


Redundancy pay is based on earnings at the dismissal date. An employee who has worked full-time in the past but who transfers to part-time work will have all their statutory redundancy pay calculated at the part-time rate (Barry v Midland Bank [1998] IRLR 138). The only exception is where the cut in hours qualifies as “short-time working” (see page 410). It is therefore crucial that anyone who agrees to work reduced hours or for lower pay to avoid redundancy negotiates an agreement that any eventual redundancy payment, if redundancies cannot be avoided, will be based on their full-time pay and hours. 




The employer must give the employee a written statement saying how redundancy pay is calculated (section 165, ERA 96) and in a collective redundancy, must also notify the representative.