Working out redundancy terms
Once the consultation and selection processes are complete and the decisions made, the employer needs to give the affected employees notice that they will be dismissed by reason of redundancy. To do this you need to ensure that you comply with the current statutory dismissal procedure. This includes giving written notification of meetings and the right of employees to be accompanied by an accredited trade union official or work colleague.
The written notice of dismissal must also inform the employee the terms of the calculation of the redundancy payment and of the right to appeal.
Any employee with two or more years’ service who is dismissed as a result of redundancy will be entitled to be paid a tax-free lump sum. The precise amount will depend on the individual’s age, length of service and gross weekly wage. Some employers pay at a rate higher than the statutory amount, but need to ensure that they do not inadvertently discriminate on age grounds by making inappropriate variations to the statutory formula.
You also need to determine whether employees will work their notice or whether they will be paid in lieu of notice (PILON.) If you use PILON then this may also be tax free (up to a maximum of £30k in total including the redundancy payment) depending on whether this is captured as a contractual right in your contracts of employment or not. Generally speaking if a payment is contractual, it will be taxable, but if unsure, you should seek advice.
Any other contractual payments due, such as untaken annual leave will be subject to tax and national insurance in the usual manner.
Posted on 19 Nov 2016