How should an employer calculate an employee's length of service for the purposes of redundancy pay if the employee is paid in lieu of notice?
Where an employee is dismissed with a payment in lieu of notice, to calculate their length of service for the purposes of statutory redundancy pay, the employer should add on the minimum statutory notice period to the employee's service as at the date on which the employment ends.
An employee's length of service for redundancy pay purposes should be calculated as at the "relevant date" in accordance with s.145 of the Employment Rights Act 1996. Where an employee has been dismissed without the statutory minimum notice to which they are entitled, including where a payment is made in lieu of notice, s.145(5) states that the relevant date is the date on which the minimum notice would have expired had it been given.
So if an employee would have reached an anniversary increasing their length of service during the statutory minimum notice period, had they not been dismissed without notice, the extra year should be included in the calculation of the redundancy payment. For example, an employee with five years and 11 months' service is entitled to five weeks' statutory minimum notice (under s.86 of the Employment Rights Act 1996). If the employee is dismissed with a payment in lieu of notice, the redundancy payment will be calculated based on six years of service because the five weeks' notice required under s.86 would have taken them past the anniversary date.