Calculating statutory redundancy pay help

If your business is in financial difficulty, you may need to make staff redundancies in order to survive. It’s a drastic step to take, but with so many businesses struggling to deal with the economic impact of coronavirus, more and more business owners are having to make these difficult decisions.

Employees may also be able to claim other statutory entitlements and recoup overdue monies if you’re business isn’t able to pay, including arrears of wages and holiday pay, and payment in lieu of notice.

The amount of redundancy pay employees can claim is based on three elements. So let’s have a look at the information you need, and how to calculate redundancy pay for yourself and/or your employees.

What information do you need to calculate statutory redundancy pay?

The three elements to calculate redundancy pay are:

• Age
• Weekly pay (capped at £571 per week if made redundant on or after 6th April 2020)
• Length of service (capped at 20 years)

To establish the figure for weekly pay, you need to use the date of the redundancy notice and take an average of the amounts paid during the 12 weeks preceding this date. If staff have been on furlough during this 12-week period, you should use their normal wages rather than the furloughed wages.

The government has capped the total amount of redundancy pay at £16,140 for redundancies on or after 6th April 2020. This figure, and that for the weekly pay limit, will be lower for redundancies made before this date.

How to calculate statutory redundancy pay

Once you have the above information, the calculation for statutory redundancy is as follows:

• Aged 18-22: half a week’s pay for each full year of working for your business
• Aged 22-40: one week’s pay for each full year
• Aged 41 and above: one and a half week’s pay for each full year

Redundancy payments of up to £30,000 are free of tax and National Insurance, but other entitlements such as holiday pay do attract tax and NI. It typically takes around six weeks to receive redundancy payments, although it can take longer.

A short note about redundancy pay for directors

It’s not commonly known but company directors may also be eligible to receive redundancy pay if their business is liquidated. Eligibility depends on various factors including whether an employment contract is in place - this can be a written, oral, or implied contract of employment.

If you’re a director you also need to have been paid a salary under the PAYE scheme, and have worked for a minimum of 16 hours per week in a non-advisory role. The general requirement to have worked for the company as an employee for at least two years also applies.

If you would like professional assistance to help you accurately calculate redundancy payments, we can put you in touch with a qualified accountant in your area. Handpicked Accountants provide trustworthy referrals for reliable accountants throughout the UK – please contact one of the team to find out more about how we can help.