In the event that your current employer terminates your employment, you may be eligible for severance pay. Learn how to compute the payment, determine whether or not you are eligible for it, and find out when you will be paid.

What exactly is severance pay for?

You may be eligible for redundancy pay if your employer chooses to eliminate your position from the company’s operations and you are consequently required to resign from your position.You will receive your redundancy pay in a lump sum, and the first £30,000 of it is generally exempt from taxation. This means that you will not be responsible for paying any income tax or National Insurance contributions on this money (NICs).

Companies are required by law to make a minimum redundancy payment to employees who are eligible for it under the terms of the law (to those employees who have at least two years continuous employment). “statutory redundancy pay” is the name given to this sum of money. Enhanced redundancy pay is when an employer pays more than the minimum required by law; this is called enhanced redundancy pay.

How is the amount of statutory redundancy pay determined?

Your statutory redundancy pay is determined by your age, the number of years you’ve worked for your employer, and the amount of your pre-tax salary.

The following is a breakdown of the compensation to which you are entitled:

You will receive pay equal to one and a half weeks of work for each full year of service you have completed after the age of 41.
One week’s pay for every full year of service performed when you were between the ages of 22 and 40
You will receive payment equal to one-half of one week’s salary for each full year of service performed while you were younger than 22 years old.

If you are already employed by your company when you reach the ages of 22 or 41, you will only be eligible for the higher pay rates for the full years that you have worked after reaching those ages.

You will be paid your regular rate for the week, up to a maximum gross amount of £571 per week.The total amount of statutory redundancy pay to which you are entitled is capped at £17,130, and the length of service for which you can be compensated is limited to a maximum of 20 years. On April 6 of each year, these statutory caps are subjected to a review.

Enhanced pay for being made redundant

Employers have the option of either paying their workers more than the legally required minimum or reducing the number of years of service required for eligibility to a period of less than two years. This may be stipulated in your employment contract, or it may be a point of agreement during the process of negotiating your redundancy.

However, your employer is not allowed to provide you with less than what is specified in your contract or in the law. Even if the terms of your employment contract stipulate a lower amount or require you to forego redundancy pay entirely, your employer is still required to fulfil its legal obligations, regardless of the language in your employment contract.

A levy placed on severance pay

tax-free allowance of £30,000 per year

There is a possibility that up to £30,000 of your total redundancy pay, including both statutory and contractual payments, will be exempt from taxation. If you only receive the bare minimum required by law, you won’t have to worry about paying any taxes because the maximum amount of statutory redundancy pay is £17,130.

Above £30,000, any portion of your redundancy pay is considered income and will be taxed at the same rate as your salary and other earnings. This applies even if the redundancy wasn’t your fault. Be aware that this may cause you to fall into a higher tax bracket if your salary is very close to the threshold for that bracket.If you are given non-cash benefits as part of your redundancy package, such as keeping the company car or laptop, the value of these benefits will be added to your redundancy package, and this could cause you to go over the limit of £30,000 that applies to redundancy packages.

You are entitled to receive payment for any accumulated annual leave as well as any bonuses that you have earned over the course of your employment. However, these will never be considered part of your redundancy package and will instead be taxed as income at any time they are received.

An illustration of a tax on redundancy

Your redundancy package consists of a cash payment of £25,000 from your employer as a severance payment, as well as permission to keep the company car, which has a value of £10,000. In addition, you are due holiday pay totaling £3,000 and a bonus of £1,000 from the company. Your total package for being let go is $35,000, which means that you will be taxed on $5,000. The total of £4,000 in holiday pay and bonus is considered income and will therefore be subject to taxation.

Who is qualified to receive payments under the statutory redundancy scheme?

The guidelines for statutory redundancy pay are fairly stringent and must be followed exactly. To qualify, you must:

have a minimum of two years of continuous work experience for your current employer.
have been fired from your job because your employer was forced to lay off employees due to a genuine lack of work.
have held a position of employment.

There will be a significant number of employees who are not eligible for statutory redundancy pay. Unless one of the following conditions is met:

If you have worked in the position for less than two years, you are not considered an employee of the company; an example of this would be if you are a casual worker.
You are employed by yourself.
you either work for the law enforcement agency or you serve in the armed forces.
You work for the Crown, on the staff of the legislature, or hold some other public office.
You are a member of the household staff, and you work for your immediate family.
You are an agent working for a government of another country.

Even if you belong to one of the categories described above, the right to receive a “redundancy” payment might still be included in your employment contract.

Those who are employed on fixed-term contracts are eligible for redundancy pay.

If you are working under a fixed-term contract, the two-year rule is still applicable to you.

If your employer does not renew your fixed-term contract due to the fact that the position is no longer available, you will only be eligible for statutory redundancy pay in one of the following situations:

You worked shorter contracts that followed on from each other, meaning that there was no break in service, and the total of all of these contracts added up to two years or more. your contract was for two years or more.

Is it possible to be disqualified from receiving statutory redundancy pay?

Even if you are eligible for redundancy pay, there is no guarantee that you will actually receive it when you leave your job.

When you quit your job, you run the risk of losing out on money for three primary reasons:

If you choose to leave your current position before the end of the notice period, for example, even if you have found another job, you will no longer be eligible for a redundancy payout because you will have left your current position before the end of the notice period. The conclusion of the notice period is the only time at which you are in fact considered redundant.
You are dismissed from your position for insubordination before the end of your employment:
You will not be eligible for redundancy pay because the reason you are leaving is not due to redundancy.
You decide against taking a suitable alternative position that is offered by your employer:
Your employer is required to make every effort to locate any “suitable alternatives” and present them to you before they can legally dismiss you from your position. A suitable alternative will typically require skills and compensation that are comparable to those required in your previous role. You will not be eligible for redundancy pay if you make a decision to decline the offer for an unreasonable reason.

When will you start receiving your severance pay?

Your redundancy pay should be paid by your employer on the day you leave the company or on the next normal pay date, whichever comes first.

It is recommended that you get the money in the same manner that you get your salary, which is to say that it should be deposited into your bank account.

In addition, your employer is obligated to provide you with a written document that details the methodology behind the computation of your redundancy payment.

What should you do in the event that your employer does not pay you?

In the event that your employer does not pay the correct amount or does not pay it in the appropriate manner, there are actions you can take in order to obtain the redundancy pay to which you are entitled. These actions include the following:

Write to them as follows:

Send a letter to your previous employer in which you explain your rights and responsibilities and include any supporting documentation you may have. You are required to do this within the first six months after the termination of your employment.

Acas should be contacted first. Initial Attempts at Conciliation: The Advisory, Conciliation, and Arbitration Service, also known as Acas, is an organisation that gives employers and employees free information that is unbiased and pertains to employment law as well as general workplace relations. Acas will investigate whether or not the dispute can be resolved by your employer without the need for you to file a claim with the employment tribunal. You have until the first deadline to begin the early conciliation process in order to file a claim with the Employment Tribunal (for more information, see “Go to a tribunal” below).

Go to a tribunal:
In the event that the Early Conciliation process is unsuccessful, you may then turn to a tribunal. The standard time limit for filing a claim for the redundancy pay to which you are entitled is six months and one day, beginning with the date on which you were last employed (see below). The time limit for filing a claim for unfair dismissal or notice pay is three months and one day after the date on which your employment was terminated. This is the deadline for filing your claim.

If any of the following four events take place within the first six months after your last day of employment, then you will retain your right to a statutory redundancy payment. However, if none of these events take place, then you will lose this right.

Your employer has agreed to make the payment and will pay it.
You submit a written request for payment to the company that employs you.
An employment tribunal receives your claim for the statutory redundancy payment you are entitled to receive.
You present a claim of unfair dismissal to an employment tribunal.

Your right to file a claim with an employment tribunal is preserved indefinitely after you have demonstrated that you are entitled to make a claim through any one of the methods described above (ie. there is no time limit for making a subsequent claim to a tribunal).

If the company that you work for goes out of business.

If your employer is bankrupt and they haven’t paid you the redundancy that you are owed, you can use the service that the government provides called “claim for redundancy and monies owed.”

In the event that your employer has ceased operations but is not currently bankrupt, you will be required to file a claim with an employment tribunal.