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The job retention scheme has been a lifeline for a lot of employers. But it doesn’t mean that all redundancies will be avoided. If you are considering making redundancies here’s what you need to know.

Normal redundancy rules can apply to furloughed workers. As always, we would suggest discussing redundancy payments with a professional HR advisor before they are carried out. If you are making redundancies our guide will help calculate the payments.

Payment

Redundant employees will be entitled to the following payments;

  • Notice pay – as per their contract of employment but at least statutory minimum
  • Outstanding annual leave
  • Redundancy pay
Job Retention Scheme

Employers can claim 80% of the notice pay and holiday accrual (capped with the usual limits) via the job retention scheme for furloughed workers. Employers do need to top this up to 100%. The redundancy payment will be covered solely by the employer.

Tax and NIC Treatment

Notice pay and holiday pay will be treated as normal earnings for tax, NIC and pension calculations. Depending on contractual terms PILON (Payment in lieu of notice) may be deemed non-pensionable.

The redundancy payment itself is treated differently. Up to £30,000 is tax and NIC free. Any part of a redundancy payment over £30,000 will be taxable but will not incur employee national insurance deductions. The employer will have to pay Employers NIC at a rate of 13.8% on redundancy pay that falls above the £30,000 threshold.

Calculating Notice Pay

The statutory redundancy notice periods are:

  • At least one week’s notice if employed between one month and 2 years
  • One week’s notice for each year if employed between 2 and 12 years
  • 12 weeks’ notice if employed for 12 years or more
Calculating Redundancy Pay
  • Half a week’s pay for each full year you were under 22
  • One week’s pay for each full year you were 22 or older, but under 41.
  • One and half week’s pay for each full year you were 41 or older.
  • Length of service is capped at 20 years.

 

If you were made redundant on or after 6 April 2020, your weekly pay is capped at £538 and the maximum statutory redundancy pay you can get is £16,140. If you were made redundant before 6 April 2020, these amounts will be lower.