Video: Redundancy pay rise imminent
In a one-off measure designed to mitigate the effects of recession, the maximum of a week's pay for the purposes of calculating statutory redundancy pay will rise by £30 on 1 October. XpertHR editors David Shepherd and Jo Stubbs discuss the implications for employers.
Video: Implications of the redundancy pay rise on 1 October
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The questions in full:
How is the Government making the one-off increase to the maximum of a week's pay for the purposes of calculating statutory redundancy pay?
The Government produced a statutory instrument - the Work and Families (Increase of Maximum Amount) Order 2009 (SI 2009/1903) in July, and this comes into force on 1 October. The Government is making the change via s.14 of the Work and Families Act 2006, which allows it, on one occasion only, to substitute a higher amount for a week's pay.
What will the new maximum week's pay for statutory redundancy pay purposes be?
The maximum week's pay for statutory redundancy pay purposes is rising from £350 to £380. This means that the maximum statutory redundancy payment for someone with 20 or more years' service in the highest age group (41 and over) will rise from £10,500 to £11,400.
Which employees will benefit from the increase?
For redundancy purposes the important date is the "relevant date" (see below), which, in most cases, is when the notice of dismissal expires. The change will benefit those employees for whom the relevant date is on or after 1 October 2009. So an employee whose employment ends either on 1 October, or any date after, will benefit.
Is it just the maximum week's pay for statutory redundancy purposes that is affected by the increase?
No, the increase affects compensation awards too. These include the basic award for unfair dismissal, which compensates employees for loss of job security, and the additional award, which is payable when the employer fails to comply with a tribunal order to reinstate or re-engage the employee. The basic award for unfair dismissal is based on the same age and length-of-service formula as the statutory redundancy pay calculation. The maximum will therefore also rise to £11,400 for an employee employed for 20 years in the oldest age group.
Employers are used to the maximum rate of a week's pay for statutory redundancy pay and unfair dismissal compensation purposes rising on 1 February each year. Will the rate increase again on 1 February 2010?
The amount changes on 1 February each year because of the Employment Relations Act 1999, which provides that the figure increases (or decreases) in line with the retail prices index for September of the previous year. However, the statutory instrument coming into force on 1 October excludes the operation of the index on this one occasion, so the maximum week's pay for statutory redundancy pay and unfair dismissal compensation calculation purposes will not rise again (or decrease) on 1 February 2010.
XpertHR quick reference section
The XpertHR quick reference section pulls together in one place key employment law facts, such as qualifying periods for employment rights and statutory minimum notice periods. These include:
- Award limits and amounts payable under employment legislation from 1 October 2009
- Relevant date for the purposes of redundancy
- Statutory redundancy payments ready reckoner
- Calculation of a week's pay
- Unfair dismissal basic award
- Unfair dismissal additional award
Keep tabs on the retail prices index and other economic indicators.
Model policies and documents
From the XpertHR FAQs section:
- Where an employee has recently changed from full-time to part-time hours how should his or her redundancy payment be calculated?
- Where an employee has been given notice of redundancy, if he or she seeks to leave before the end of the notice period to take up a new job will this affect his or her statutory redundancy payment?
- Where an employee is made redundant shortly before the annual increase in the limit of a week's pay, but is paid in lieu of notice, which limit should be used to calculate his or her redundancy payment?
- Where an employee tenders his or her resignation prior to the announcement of the closure of the business will he or she be entitled to redundancy compensation?
- Where an employer has granted an employee's request to work beyond retirement age, but that employee subsequently becomes redundant, is he or she entitled to statutory redundancy pay?
The XpertHR worked examples section guides you step by step through the detailed processes necessary to ensure compliance with the law in areas ranging from statutory redundancy payments to the information and consultation legislation. Each worked example sets out a scenario and the necessary action in the circumstances, and follows this with a concise explanation. Worked examples include: