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. 


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Worked examples

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: