As we continue to adapt to the challenges of the pandemic, redundancy rates are rising, which can be hard for any small business. Should you make any employees redundant, ensuring that you calculate their redundancy payment correct is imperative.

How To Correctly Calculate Redundancy Pay

Begin calculating redundancy pay by assessing the contract of the employee. Here, you may be able to find a formula, as well as how much you have agreed to pay in lieu of notice and for holiday accrued. Other information you will require includes the date of birth of the employee, along with when they joined the business. Employees that have been with the company for at least two years will be entitled to statutory redundancy at a minimum, which includes time spent on furlough.

The redundancy payment will be based on an employee’s average weekly pay, capped at £538. Typically, this will be based on the received in the 12 weeks ending on the day before you issue the redundancy notice. If the employee has been put on furlough, you must use their normal pay before it was dropped to 80%.

The redundancy pay is calculated as:

  • one and a half weeks’ pay for each full year of employment after the employee’s 41st birthday; plus
  • one week’s pay for each full year of employment after the employee’s 22nd birthday; plus
  • half a week’s pay for each full year of employment up to the employee’s 22nd birthday.

The maximum statutory redundancy payable to a long-serving employee is £16,140 as serve more than 20 years is not counted. All statutory redundancy pay is free of tax and NIC, but holiday pay and contractual notice periods are taxed like normal pay.