Employment Law

Compromise Agreements – How Redundancy Payment is Calculated

You are entitled to a redundancy payment if your job has been made redundant by your employer. It is your right to claim for such a payout especially if you have been working with the employer for at least two years. You may not get a redundancy package if you have been employed for less than two years, but the employer has the discretion to give you any appropriate monetary package as a consolation for the job loss.

Employers declare jobs redundant if there is no other option but to dissolve the position. It could be a result of downsizing, reorganization, or a weak demand for products. The employment law does not prohibit any employer from making jobs redundant as long as there is enough and appropriate justification for the action. Any employer could not make you redundant just to get rid of you. If a new employee has been hired to replace you in your position immediately after your redundancy, you may file for an unfair dismissal.

There may be specified arrangements or provisions in your employment contract regarding how a possible redundancy payment should be worked out, in case you are made redundant. That is why you should be mindful of your employment contract before starting on any job. However, if the amount stated in the contract is less than the current statutory redundancy payment, the statutory amount should be applied.

Taxation is another issue when it comes to redundancy payment. Statutory redundancy package is not taxable. That means the first £30,000 of your termination payout would not be deducted any tax imposition. However, when the package exceeds the amount, appropriate taxation schemes would be applied and deducted.

Total amount of your redundancy payment must be based on your age, the length of your employment with the employer, and your weekly regular pay (with a legal limit currently at the maximum of or £380). Thus, you are entitled to a half week’s pay for every year of your continuous employment with the same employer if you are younger than 22 years old. You would get a full week’s payment for every year of continuous employment if you are between 22 years old and 40 years old. Lastly, you would get a 1.5 week’s pay for every year of employment if you are more than 40 years old.

However, years of services when you were under 18 years old in the employment would not be counted. The redundancy payment would be diminished by a twelfth for every complete month if you are over 64 years old. You are not entitled to any redundancy payout at all if you are older than 65 years.

The employer also has the right to offer you a compromise agreement, which would set it loose from any attachment that would bind you and the company after the redundancy. The agreement usually comes with a hefty monetary package, which may or may not be much higher than the overall redundancy payment. If you are considering accepting such an offer, you must hire an independent employment solicitor to provide you legal guidance and insights.