Redundancy pay (and other statutory limits) to rise again

It has been confirmed that statutory redundancy pay will rise from April 2019.

It has been confirmed that statutory redundancy pay will rise from April 2019. There will also be an increase in the statutory rates and limits which apply to other employment rights, such as the basic award for unfair dismissal and the maximum unfair dismissal compensatory award.

The new limits will apply to dismissals where the effective date of termination is on or after 6 April 2019. Where the dismissal falls before this date, the old rates will apply.

The detail

  • £525 will be the maximum amount of a week’s pay for calculating statutory redundancy pay, and the basic award for unfair dismissal (up from £508);
  • £15,750 will be the largest possible statutory redundancy payment or basic award (up from £15,240);
  • £86,444 will be the maximum compensatory award which can be made after a successful “ordinary” unfair dismissal claim (up from £83,682); and
  • £102,194 is the maximum potential award for unfair dismissal when the basic and compensatory awards are combined (up from £98,922).

Remember that there is also an additional cap of one year’s gross salary on the compensatory award for unfair dismissal, if it is lower than the maximum compensatory award figure. 

However, there is no cap to the awards that can be made in many cases, including those for discrimination on the grounds of a protected characteristic, or those where whistleblowing is alleged to be the reason for the dismissal or detrimental treatment.

What does this mean for me?

The most important thing is to remember to use these new figures if you are proposing redundancies where the employment is due to end on or after 6 April 2019. These revised figures will also need to be included in any calculations being made of the costs of future redundancies. You may also wish to bear the new figures in mind when calculating the value of employee settlement packages where the employee will exit your organisation after 6 April. 

Comment

These changes occur automatically each year to ensure that employment awards increase in line with inflation.

Significantly, this year sees another big jump in the maximum amount of a week’s pay for calculating statutory redundancy pay and the basic award for unfair dismissal (£17 this year, following a sizeable increase of £19 in 2018). This increase may result in notable additional cost if you are undertaking a large scale redundancy exercise. To put this in context, the increase in 2017 was only £10, and the increase in 2016 only £4.

This year marks a milestone as the maximum award for unfair dismissal has risen above £100,000 for the first time ever. However, in practice, most ‘ordinary’ unfair dismissal awards will fall significantly below this, where the employee is an average earner.

Remember too that the way in which termination payments are taxed changed last year. Where notice has not been paid and/or taxed separately, compensation payments now need to be divided up into an amount representing notice pay (which will be subject to income tax and Class 1 NICs) and the remainder of the payment (payable free of tax and NICs up to £30,000). Those rules do not apply to statutory redundancy payments which remain free of tax and Class 1 NICs in their entirety (up to £30,000). If you are unsure about how to calculate an employee’s redundancy award or other settlement payment, we would be happy to advise you.

If this alert raises any issues for your organisation, please speak to your usual contact in the Weightmans employment, pensions and immigration team or contact Ben Daniel (ben.daniel@weightmans.com).

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