How is redundancy pay calculated under the Employment Rights Act 1996?
The Employment Rights Act 1996 sets out how a redundancy payment is calculated by determining the period, ending with the date of termination of employment, during which the employee has been continuously employed. It then works backwards from the end of that period to calculate the number of complete years of employment falling within that period. Finally, it allows the appropriate amount for each of those years of employment.
The amounts payable (subject to the statutory cap on a week's pay) for each year of employment are:
- one and a half weeks' pay for each year of employment in which the employee was aged 41 or over;
- one week's pay for each year of employment in which the employee was aged between 22 and 40; and
- half a week's pay for each year of employment in which the employee was aged 21 and under.
A maximum of 20 years of employment can be taken into account.
The relevant date of termination, at which length of service should be calculated, is the date on which notice expires, if the dismissal is with notice. If an employee is dismissed without the statutory minimum notice, including if he or she receives a payment in lieu of notice, the relevant date is the date on which the minimum notice would have expired had it been given.