Redundancy Pay Agreement: What It Is and How It Works
In the event of redundancies, it is important for employers to understand their legal obligations to provide redundancy pay to their employees. A redundancy pay agreement lays out the terms of payment and the process involved in making these payments to employees who are being made redundant.
What is a Redundancy Pay Agreement?
A redundancy pay agreement is a legally binding document that sets out the terms of payment for employees who are being made redundant. It outlines the criteria used to determine who is eligible for redundancy pay, the amount of pay that will be provided, and the process involved in making these payments.
The agreement is negotiated between the employer and employee, or their representative, and must be signed by both parties. It is important to note that the terms of the agreement cannot be less generous than the statutory redundancy pay entitlement under the law.
Who is Eligible for Redundancy Pay?
Employees who have been continuously employed for more than two years are eligible for redundancy pay. The amount of pay that an employee is entitled to depends on their length of service, age, and weekly pay.
The current statutory redundancy pay entitlement is as follows:
– Half a week’s pay for each complete year of service under the age of 22
– One week’s pay for each complete year of service between the ages of 22 and 40
– One and a half week’s pay for each complete year of service over the age of 41
The weekly pay used to calculate redundancy pay is capped at £538, and the maximum amount of statutory redundancy pay is £16,140.
It is important to note that some employees may be excluded from redundancy pay entitlement. This includes employees who are dismissed for gross misconduct, or those who refuse suitable alternative employment offered by their employer.
How is Redundancy Pay Calculated?
The amount of redundancy pay that an employee is entitled to is based on their length of service, age, and weekly pay. The calculations are as follows:
– For each complete year of service under the age of 22 – 0.5 week’s pay
– For each complete year of service between the ages of 22 and 40 – 1 week’s pay
– For each complete year of service over the age of 41 – 1.5 week’s pay
The weekly pay used to calculate redundancy pay is the average weekly pay earned by the employee over the 12 weeks before their redundancy date. This includes regular payments such as basic salary, but excludes overtime and bonuses.
It is important to note that the amount of redundancy pay provided under a redundancy pay agreement cannot be less than the statutory redundancy pay entitlement.
The Process of Making Redundancy Payments
Under a redundancy pay agreement, the process of making redundancy payments is agreed upon by the employer and employee or their representative.
The agreement will outline the timeline for making payments, the method of payment, and any additional payments or benefits that the employee is entitled to under the agreement.
Payments should be made as soon as possible after the employee’s redundancy date, and within the timeline agreed upon in the agreement. Failure to make payments on time can result in legal action against the employer.
Conclusion
A redundancy pay agreement is an important document that outlines the terms and conditions of redundancy pay for employees who are being made redundant. It ensures that employers provide redundancy pay that is in line with legal requirements and is fair to employees.
If you are an employer who is considering redundancies, it is important to consult with legal and HR professionals to ensure that you are complying with your legal obligations and treating your employees fairly.