The rules on severance pay in detail
Employees with at least two years’ service who are dismissed because they are redundant are entitled to statutory redundancy pay. This is calculated according to the following formula:
- one and a half weeks’ pay for each year of service over the age of 41;
- one week’s pay for each year of service between the age of 22 and 40;
- half a week’s pay for each year of service under the age of 22.
However, the maximum number of service years to be taken into account is 20 and the maximum amount of a week’s pay is GBP 525 as of 6 April 2019. Applying the above calculation, the maximum redundancy payment is currently GBP 15,750 as of 6 April 2019.
Sometimes employers have contractual redundancy pay schemes that are more generous than the statutory one, but these can give rise to age discrimination claims if the amounts paid vary according to age or length of service. There is an exception from age discrimination for employer schemes that use the same age bands and multipliers as the statutory scheme (above). Alternatively, the employer could use a different scheme and seek to justify any discrimination.
Author: Lewis Silkin
Date: December 2019