Redundancy Pay

Redundancy payments are made to compensate employees for losing their jobs. Many compromise agreements include redundancy payments and many employers choose to give employees Compromise Agreements following redundancy to avoid any potential claims.

A redundancy payment is payable when an employee with two years’ continuous employment is dismissed because of redundancy. This can include where:

  • fixed term contracts come to an end without renewal
  • circumstances operate to terminate the contract
  • an employee volunteers to take redundancy
  • the work which one employee performs has not diminished, but he is dismissed to allow his position to be given to another employee whose work has diminished
  • an employee who is paid according to work done earns less than half his usual week’s pay for a period of time
The payment is calculated according to an employee’s age, his/her weekly pay (currently limited to £400 per week) and the number of years of continuous employment he/she has. If you do not have 2 years’ continuous service, you will not be entitled to a statutory redundancy payment.

An employee can lose his/her right to a redundancy payment if:

  • s/he is reinstated or re-employed in suitable alternative employment within a certain period of time (ie he is treated as not having been dismissed)
  • s/he unreasonably refuses an offer of suitable alternative employment or tries out a new position and unreasonably terminates it during the trial period
If an employer cannot or will not pay a redundancy payment, the employee can apply to BIS (previously BERR) for payment.
An employee may also have a contractual entitlement to an enhanced redundancy payment.