If an employee has been in the same job for at least two years, their employer has to pay them redundancy pay. We review the main rules below. However, it is possible that the government may amend these in the light of COVID-19 redundancy plans in this autumn\u2019s budget. <\/p>\n\n\n\n
Statutory redundancy pay and contractual redundancy pay<\/strong> <\/p>\n\n\n\n Statutory redundancy pay is the legal minimum, and no employer can pay less to its staff than this. However, there may be a greater entitlement if the provisions of an employment contract say so. <\/p>\n\n\n\n For some employees. this could mean a bigger lump sum or getting a pay-out even if they have worked there for less than two years. <\/p>\n\n\n\n How much redundancy pay will <\/strong>an employee<\/strong> get?<\/strong> <\/p>\n\n\n\n How much statutory redundancy pay an employee will get depends on: <\/p>\n\n\n\n There is an overall maximum amount of redundancy pay an employee can get which is capped at \u00a316,140 in 2020\/21 even if their actual earnings are higher or their length of service is longer than this. <\/p>\n\n\n\n Only complete years of service count, and service has to be continuous. <\/p>\n\n\n\n Here\u2019s what an employee should get in summary: <\/p>\n\n\n\n Calculating redundancy pay – An example<\/strong> <\/p>\n\n\n\n Adaku (aged 31) has worked part-time as a hairdresser for her employer for 10 years and two months earning \u00a3200 a week. <\/p>\n\n\n\n Due to COVID-19 her employer has had to make her redundant. <\/p>\n\n\n\n She gets: <\/p>\n\n\n\n So overall she gets \u00a31,900. <\/p>\n\n\n\n Pay in lieu of notice and holiday pay<\/strong> <\/p>\n\n\n\n Pay in lieu of notice<\/em><\/strong> (PILON)<\/em><\/strong> <\/p>\n\n\n\n When an employee is made redundant, their employer must give them a statutory minimum of one week\u2019s notice for up to 2 years\u2019 service and one weeks\u2019 notice for each year they have worked for them (up to a maximum of 12 weeks\u2019 notice). The employment contract may mandate a longer notice period. <\/p>\n\n\n\n All contractual or non-contractual PILON payments are subject to standard income tax and National Insurance deductions. <\/p>\n\n\n\n This means all basic pay that an employee was deemed to have received is taxed in the same way regardless of whether or not an employee worked during their notice period. <\/p>\n\n\n\n Termination payments over and above those which are deemed PILONs would still benefit from the \u00a330,000 tax and NIC exemption (see below) <\/p>\n\n\n\n Holiday pay<\/em><\/strong> <\/p>\n\n\n\n If an employee has any holiday owed, their employer has to either pay them for it or let them take it before they leave. <\/p>\n\n\n\n All holiday payments are subject to standard income tax and National Insurance deductions. <\/p>\n\n\n\n \u00a330,000 is tax free<\/strong> <\/p>\n\n\n\n When an employee is made redundant, they are likely to receive a mix of redundancy pay (which is compensation for their job loss) and other amounts owed to them. <\/p>\n\n\n\n The first \u00a330,000 of redundancy pay is tax free \u2013 regardless of whether an employee gets the legal minimum or a more generous pay-out from their employer. <\/p>\n\n\n\n They won\u2019t have to pay National Insurance on it either. <\/p>\n\n\n\n But holiday pay, pay in lieu of notice and any other amounts that are pay for their work rather than compensation for the job loss are taxed as employment. <\/p>\n\n\n\n Example 1<\/em><\/strong> <\/p>\n\n\n\n Colin receives a redundancy payment of \u00a318,000 plus one month\u2019s pay in lieu of notice, totalling \u00a31,000. <\/p>\n\n\n\n The redundancy payment is tax free, but Colin\u2019s employer will have to deduct tax and National Insurance contributions from the additional \u00a31,000. <\/p>\n\n\n\n Example 2<\/em><\/strong> <\/p>\n\n\n\n Kirandeep receives a redundancy lump sum of \u00a332,000. She also gets to keep her company car, which is valued at \u00a38,000. <\/p>\n\n\n\n The value of the car is added to the redundancy payment, making \u00a340,000. <\/p>\n\n\n\n Only \u00a330,000 is tax free, so Kirandeep will pay tax on the remaining \u00a310,000 \u2013 as she is a higher-rate taxpayer, that will be taxed at a rate of 40%. <\/p>\n\n\n\n What if <\/strong>an<\/strong> employer<\/strong> is insolvent<\/strong>?<\/strong> <\/p>\n\n\n\n If an employer goes out of business then an employee will still get statutory redundancy pay and holiday pay owed to the, by claiming these from the State rather than from their employer. <\/p>\n\n\n\n SRC-Time are one of the South East\u2019s leading accountancy firms in advising businesses in all aspects of their accounting and tax affairs and we are able to assist in any issue raised above. <\/p>\n\n\n\n Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at info@src-time.co.uk or speak with an account manager to get any process started. <\/p>\n","protected":false},"excerpt":{"rendered":" If an employee has been in the same job for at least two years, their employer has to pay them redundancy pay. We review the main rules below. However, it is possible that the government may amend these in the light of COVID-19 redundancy plans in this autumn\u2019s budget. Statutory redundancy pay and contractual redundancy pay Statutory redundancy pay is the legal minimum, and no employer can pay […]<\/p>\n","protected":false},"author":4,"featured_media":658,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[14],"tags":[44],"acf":[],"_links":{"self":[{"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/posts\/1866"}],"collection":[{"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/comments?post=1866"}],"version-history":[{"count":0,"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/posts\/1866\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/media\/658"}],"wp:attachment":[{"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/media?parent=1866"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/categories?post=1866"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/srcadvisory.com\/wp-json\/wp\/v2\/tags?post=1866"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Their age <\/td> Redundancy pay <\/td><\/tr> Under 22 <\/td> Half a week\u2019s pay for each year of service <\/td><\/tr> 22 to 40 <\/td> A week\u2019s pay for each year of service <\/td><\/tr> Over 41 <\/td> A week and a half\u2019s pay for each year of service <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n