The amount of the statutory redundancy payment depends on the employee's age, length of service and pay, and is calculated using the following starting point:
- one and a half week's pay for each full year of service in which the employee was aged 41 years or more;
- one week's pay for each full year in which the employee was between the ages of 40 and 22;
- half a week's pay for each full year in which the employee was aged up to and including 21.
An employee must have two years' continuous employment at the relevant date in order to qualify for a redundancy payment. The maximum length of service that may be taken into account is 20 years.
Age-related limits on redundancy entitlement and redundancy pay remain, notwithstanding the new legislation banning age discrimination. However, younger workers can now claim for service before the age of 18, and older workers can claim for service beyond 65.
The week's pay is subject to a statutory maximum, currently £330 per week.
You might want to offer more than the statutory redundancy payment, particularly if you want to encourage voluntary redundancies. However, you should be careful that you do not create a contractual 'right' to such enhanced payments. In a recent case before the Court of Appeal, an employee successfully argued that mention of an 'entitlement' to enhanced redundancy payment in the staff handbook meant that he should have been given more than the statutory minimum. Also take care if your scheme benefits older workers more than younger workers. The latter may be able to claim age discrimination unless you can show that the benefit was a proportionate means of achieving a legitimate business aim.
