Calculating your employment entitlements
Redundancy and notice entitlements may be speficially defined in an employment contract. However, where this is not the case, the following guide will help you determine statutory redundancy and notice entitlements for both you and your employees.
How to calculate your statutory redundancy entitlements
- The number of full years’ service that you have given the company
- Your weekly salary entitlement
- Your age when your employment ended
How many weeks redundancy are you owed?
Click on the relevant tabs below to work out how many weeks redundancy pay you should receive for each full year of service you’ve given the company.
Statutory redundancy entitlements are calculated in terms of the number of weeks’ redundancy pay you are owed, using the above variables.
The number of weeks’ entitlement for any full year of service that you’ve given will be dependent upon your age during that year. E.g if you gave 10 full years’ service and you were aged 45 when your employment ended, you’ll be entitled to 12 weeks’ redundancy pay.
- For each full year worked aged 41 or over
- Each full year 22 or over, but under 41
- Each full year aged under 22
If you worked 2 full years aged 41 or over, you’ll receive 3 weeks redundancy for those two years.
If you worked 10 full years aged 41 or over, you’ll receive 15 weeks redundancy for those 10 years
If you worked 2 full years aged 22 or over but less than 41, you’ll receive 2 weeks redundancy pay for those two years
If you worked 8 full years aged 22 or over but less than 41 for all those years, you’ll receive 8 weeks redundancy for those 8 years
For example, if you worked 2 full years, you’ll receive 1 week’s redundancy pay.
The statutory entitlement covers up to a maximum of 20 years’ service. If you were aged 41 or over for all of those 20 years, you would be owed the maximum entitlement of 30 weeks redundancy.
How much redundancy pay will I receive?
This depends on your weekly salary rate. Alf, a company director aged 58 at the time of his redundancy gave 16 full years’ service to the company, and was therefore entitled to 24 weeks redundancy pay. The sliders below give examples of Alf’s redundancy payment depending on his salary rates.
If Alf’s gross annual salary was in line with national minimum wage for the tax year ending 5 April 2020, his redundancy entitlement would amount to £7,881.60.
At national minimum wage, Alf’s gross annual salary entitlement would be £17,076.80
His weekly salary rate would therefore be £328.40
24 weeks’ redundancy entitlement at £328.40 per week is £7,881.60
The redundancy payment would not be subject to tax or national insurance deductions
Alf would also be entitled to a paid notice period of 12 weeks, and any outstanding wages or holiday days owing should also be paid. See further information below.
Alf’s weekly salary rate would be £500 and his redundancy entitlement of 24 weeks would therefore amount to £12,000.
Again, this payment would not be subject to tax or national insurance contributions.
Alf would also be entitled to a paid notice period of 12 weeks, and any outstanding wages or unpaid holiday days should also be paid. See further information below.
Statutory notice periods
All employees (including director-employees) are entitled to a paid notice period before their employment ends. Where this is not specifically defined in a contract of employment, the statutory entitlements will apply.
Statutory notice periods are defined by length of service and are as follows:
Payments in lieu of notice
Where it is not possible to give sufficient paid notice before employment ends, or if the notice period was worked and not paid, employees can be paid full or part payments in lieu of statutory notice. In Alf’s case, he was entitled to 12 weeks paid notice based on his 16 years’ service.
- At minimum wage, if Alf did not receive any paid notice, this would amount to £3,940.80 (12 weeks at £328.40). This payment would be subject to tax and national insurance deductions.
- At a salary of £26,000 per annum, Alf would be owed £6000 statutory notice pay (12 weeks at £500) if he didn’t receive any paid notice, which would also be subject to tax and NI deductions.
Outstanding wages and holiday entitlements
All employees should be paid any unpaid wages they are owed, together with any outstanding holiday days.
What happens when the company cannot afford to make redundancy payments?
Where the company is unable to settle its financial obligations for redundancy, paid notice, outstanding wages and/or holiday days, all employees (including director – employees) are able to apply for payment from the National Insurance Fund, via the Redundancy Payments Service, once the company is placed into a formal insolvency procedure.
Statutory redundancy payments from the National Insurance Fund
Payments made by the Redundancy Payments Service will be subject to some limitations, as follows:
- Weekly salary rate – the maximum weekly salary rate that will be considered /paid in the tax year ending 5 April 2020 is £525 equating to a gross annual salary of £27,300
- Redundancy – as above, a maximum of 20 years service will be considered
- Loss of notice – the Redundancy Payments Service will deduct any earnings from new employment (or self employed profit) received during your notice period from any payment made. Similarly, any new or increases to existing benefits will also be deducted, along with jobseekers’ allowance, regardless of whether you have claimed it or not.
- A maximum of 8 weeks unpaid wages will be considered
- A maximum of 6 weeks unpaid holiday days will be considered
Will you pay tax on payments made by the Redundancy Payments Service?
This varies according to the type of payment being made. Details as follows:
- Redundancy payments are not subject to any tax or NI deductions at source.
- Notice payments will be subject to National Insurance deductions, 20% tax deduction at source and deductions will also be made by the RPS for any benefits claimed, or benefits such as jobseekers that the employee was entitled to, regardless of whether they were claimed or not. Any earnings received during the notice period, from paid employment or self employed profit, will also be deducted from any payments made by the Redundancy Payments Service.
- Unpaid wages and holiday payments will be subject to 20% tax deductions at source and deductions will also be made for National Insurance contributions.
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