Redundancy pay and National Insurance contributions

Payment	Do I pay tax?	Do I pay National Insurance?
Redundancy payment	Only on the amount over £30,000	No
Unpaid wages	Yes	Yes
Bonus payment	Yes	Yes
Occupational pension	Yes	No

Your employer will deduct tax and National Insurance Contributions using the guidance we provide. He or she should also give you a form P45 Details of employee leaving work when you leave.

If your employer pays your redundancy pay before you leave the employment, form
P45 will reflect the pay and tax deducted through Pay As You Earn (PAYE).

If you are paid after you have left the employment and you have already been given
form P45, your employer should not give you another. Instead, your employer should
give you documentary confirmation of the payment (for example a letter, payslip or
other printed document) stating:

• the date of the payment
• the amount of payment
• the amount of tax deducted
• confirmation that the payment is a post-leaving payment.

When will I get my redundancy pay?

If the company you were working for is paying the redundancy, then it should be paid on the last day that you work or as soon as is possible.

If there is to be any long delay with the payment, then that needs to be discussed and agreed with the employee. If the employee feels that they have to wait too long, then they can take the employer to an Employment Tribunal.

Redeployment - how employers can select

If you have got to the stage where your post is made redundant, but there are other jobs available within the organisation, your employer needs to let you know how candidates are going to be selected.  This could be by: -

• slotted in - a new post may contain about 80% of your current activities.  You then have a claim for being slotted into the new post.  
• ring-fencing - a number of individuals may be ring-fenced to a particular post.  This is usually when the new job contains about 2/3rd of your old job.  
• competitive interview - this could be open to general applicants or to a narrow group who have been ring-fenced 
• Panel selection - a group with meet to review the specifications of the proposed post, and will compare candidates by means of relevant skills, knowledge, experience, flexibility and adaptability, aptitude and approach to work, to ensure that the skills and experience are appropriate to the organisation’s future operating needs

Note that if new posts are available within the organisation, the posts should be first offered to those employees who would otherwise have been made redundant.

In accordance with statutory provisions, if you unreasonably refuses a slotted in position (i.e. suitable alternative employment) you will forfeit your right to any redundancy payment and any enhanced pension membership purchased on your behalf.  You should be advised of this likely decision in advance, which will allow you an opportunity to re-consider !

On a general basis, if people are at risk, then they should, all things being equal, be offered ANY suitable  alternative vacancy first.  However, note that although an employer is required to make all reasonable efforts to avoid redundancy, there is no legal obligations abut ring-fencing and slotting in criteria.  One more good reason to stay polite right to the end.

Statutory redundancy pay

You will get:

• 0.5 week’s pay for each full year of service where your age was under 22
• 1 week’s pay for each full year of service where your age was 22 or above, but under 41
• 1.5 week’s pay for each full year of service where your age was 41 or above

As of today's date (October 2011), the maximum weekly pay is £400.

For example: If you are 45, your pay is £400 per week and you have completed 17 years full service, you be entitled to 19 weeks of statutory redundancy pay at a rate of £400 which totals £7600.

Step one: 0.5 weeks pay for each full year of service where your age was under 22.

Step two: 1 weeks pay for each full year of service where your age was 22 or above but under 41.

Step three: 1.5 weeks pay for each full year of service where your age was 41 or above

For example:  If you are 40, your pay is £400 per week and you have completed 15 years full service, you will be entitled to 15 weeks of statutory redundancy pay at a rate of £400 which totals £6,000.


Step one: 0.5 weeks pay for each full year of service where your age was under 22 (0)

Step two: 1 weeks pay for each full year of service where your age was 22 or above but under 41 (15)

Step three: 1.5 weeks pay for each full year of service where your age was 41 or above  (0)

Redundancy pay and tax

As of October 2011, redundancy pay under £30,000 in the UK is not taxable.

More information on whether elements of the payment, such as pay in lieu of notice (PILON), is taxable is available from HM Revenue and Customs.

Pay in lieu of notice is money paid to you by your employer as an alternative to being given your full notice.

Redundancy pay - the basics

You have the right to a statutory redundancy payment if you are an employee who has worked continuously for your employer for at least two years and you are being made redundant.

Statutory redundancy pay is also due when a fixed-term contract of two years or more expires and is not renewed because of redundancy.

You do not have to claim statutory redundancy pay from your employer, they should automatically pay it to you. If your employer does not give you statutory redundancy pay when you are entitled to it you should write to them asking for payment. If your employer still refuses to pay you or cannot make the payment you could make an appeal to an Employment Tribunal.

How much statutory redundancy pay you will receive depends on:

• how long you have worked for your employer
• your age
• your pay

Redundancy pay - the risk

You will put any settlement at risk if you

• are offered alternative work by your employer
• refuse alternative work offered to you by your employer without good reason
• if you accept alternative work by your employer, do not agree a suitable trial period and then leave after a short period.