Redundancy pay (and other statutory limits) to rise again

It has been confirmed that statutory redundancy pay will rise from April 2018.

It has been confirmed that statutory redundancy pay will rise from April 2018. 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 2018. Where the dismissal falls before this date, the old rates will apply.

The detail

  • £508 will be the maximum amount of a week's pay for calculating statutory redundancy pay, and the basic award for unfair dismissal (up from £489);

  • £15,240 will be the largest possible statutory redundancy payment or basic award (up from £14,670);

  • £83,682 will be the maximum compensatory award which can be made after a successful "ordinary" unfair dismissal claim (up from £80,541); and

  • £98,922 is the maximum potential award for unfair dismissal when the basic and compensatory awards are combined (up from £95,211).

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 on 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.

There is one other important change coming in from 6 April 2018 which will impact upon severance and exit payments. This change will require a payment equivalent to notice to be taxed, before a tax-free severance payment can be made (irrespective of whether or not there is a Pay In Lieu Of Notice clause in the contract, which is currently important). Where termination and payment occur on or after that date and notice is not worked, a compensation payment will 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 if payable as compensation for loss of employment). However, crucially, these new rules will not apply to redundancy payments which will remain free of tax and Class 1 NICs in their entirety up to £30,000 (although there might be some issues/doubts around the ways the new rules will work in practice, with which we are happy to help).

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 2018. These revised figures will also need to be included in any calculations being made of the costs of future redundancies.

Comment

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

The most significant change this year is the jump of £19 in the maximum amount of a week’s pay for calculating statutory redundancy pay and the basic award for unfair dismissal. To put this in context, the increase last year was only £10, and the increase in 2016 only £4. This increase may result in notable additional cost if you are undertaking a large scale redundancy exercise.

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 Phil Allen (phil.allen@weightmans.com).

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