Making staff redundant is hard for any small business as employees can become as close as family.

Any employees you let go are entitled to a written statement setting out the amount of their redundancy payment and how it was calculated so it is important to get this right.

Start by looking at the employees’ employment contracts as these may set out a formula for calculating redundancy pay and how much you have agreed to pay in lieu of notice and for holiday accrued. You also need to know the employees’ dates of birth and exactly when they started working for your business.
As a minimum, you are required to pay statutory redundancy to employees with at least two years’ service, including time spent on furlough.

The calculation is based on an employee’s average weekly pay, capped at £538. This is normally calculated from the pay received in the 12 weeks ending on the day before you issue the redundancy notice. However you are required to use the employee’s normal pay before it was reduced to 80% for furlough purposes.

The redundancy pay is calculated as:

• one and a half weeks’ pay for each full year of employment after the employee’s 41st birthday; plus
• one week’s pay for each full year of employment after the employee’s 22nd birthday; plus
• half a week’s pay for each full year of employment up to the employee’s 22nd birthday.

Service beyond 20 years is ignored so the maximum amount of statutory redundancy payable to a long-serving employee is £16,140.

All statutory redundancy pay is free of tax and NIC but holiday pay and contractual notice periods are taxed like normal pay.

This article is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or taking professional advice. The authors and the firm cannot accept any responsibility for loss arising from any person acting or refraining from acting on the basis of the material included herein.

Andy Fleet

Author Andy Fleet

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