When an employee may be redundant and rights to a redundancy payment.

Redundancy Pay

Redundancy is only a fair reason for dismissal in the specific circumstances defined in section 139 of the Employment Rights Act 1996. An employee can only be made redundant when the need for employees to carry out work of a particular type in a particular place has ceased or diminished, or is expected to cease or diminish. It will  therefore involve either the closure (whether temporary or permanent) of a business as a whole or closure of a particular workplace where the employee was employed, or a reduction in the size of the workforce.

All redundancies must be carried out fairly, and in accordance with laid down procedures. Otherwise it is unfair. The necessary elements of fair procedure are:

  • advance warning,
  • consultation,
  • fair selection,
  • consideration of the availability of alternative employment.

An employer must have a fair procedure for selecting who is going to be made redundant. Once the method has been decided upon, the employer must stick to it. One of the most commonly used methods is ‘last in – first out’.

Redundancy payments

In order to qualify for a redundancy payment, the dismissed employee must have been continuously employed by the employer for at least 2 years at the date of the dismissal. However, there are some workers who are specifically excluded from making a claim. These are:

• People under 20, or past normal retiring age for the post (or, if there is no such age, 65);
• Employee’s dismissed for misconduct;
• Redundant employees who refuse suitable alternative employment;
• Fixed term contract workers of more than 2 years, who have renounced their redundancy rights;
• Share fishermen, people ordinarily working abroad, employees of foreign governments, civil servants and certain public officials.

Many employers will have their own redundancy schemes, which sometimes offer more generous provision for those made redundant. If not the  statutory redundancy pay scheme will apply where the calculation is made by reference to the number of completed years of service by the employee. An employee who is to be made redundant will receive:

• One and a half week’s pay for each year in which the employee was over 41 years of age;
• One week’s pay for each year in which they were over 22, but under 41;
• Half a week’s pay for each year over 18, but under 22.

The maximum number of years which can be counted is 20. The statute lays down how ‘a week’s pay’ should be calculated, but this is subject to a maximum figure, which is currently only £270. The current maximum payment is therefore £8,100. Both statutory and non-statutory redundancy payments up to £30,000 are exempt from income tax.

Applications for a statutory redundancy payment are made to the industrial tribunal, and must be lodged within 6 months of the redundancy.

Alternative employment must not be refused, providing it is suitable. Where suitable alternative employment is unreasonably refused, the right to a redundancy payment may be lost. A four week trial period to test suitability may be taken.

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