Being made redundant is a worrying time and can leave you wondering how much redundancy pay you will be entitled to receive. This is something that people very often don’t consider, believing it won’t affect them. The amount of redundancy pay received will depend on a number of factors, including age, the length of time employed by the company and your salary or wage.
There are two types of redundancy pay; contractual redundancy pay and statutory redundancy pay. Your employment contract will contain details of how much redundancy pay you are entitled to, as some employers have a more generous redundancy scheme than the statutory minimum. The contractual redundancy pay offered by your employer cannot fall below the statutory minimum.
Statutory redundancy pay is the very least that you will receive if you are made redundant. This is calculated using the number of years you have been employed, your weekly wage and your age. The current limit for the amount of weekly pay used is £400. If you were aged below 22, you will receive 0.5 weeks’ salary for every year you were employed by the company at that age. If you were aged 22 or above but below 41, you will receive one weeks’ pay for each full year of employment at that time. Service completed at age 41 or over is entitled to receive 1.5 weeks’ pay for each year of service to the company.
This is calculated by looking at your total service with your employer and breaking it down into the different ages. For instance, if you earn £400 a week, aged 45 and have completed 15 years’ service, the amount of redundancy would be £6,800 statutory redundancy pay. This is calculated by working out the four years’ service when you were aged 41 or over and multiplied by 1.5 weeks’ pay. You also calculate the 11 years’ service when you were aged below 41 and multiplied by one week’s pay. Finally, add those amounts together and that will provide the total amount of redundancy pay you will be entitled to receive.
The relevant end date for your employment service is usually the date that your employment is terminated. However, it could be calculated using various other dates and you must know what the relevant end date is to calculate your redundancy pay. The first £30,000 of redundancy pay isn’t taxable, but the remainder is taxed at the marginal rate.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox