What you’re entitled to if you’re made redundant; understanding the rules of redundancy pay.


Even though the recession is on its way out (supposedly), more companies are likely to make workers redundant in the coming months. It’s rarely easy to deal with, but if you know what your options are you may feel that you have some control over what’s happening to you.

Redundancy pay
Not everyone is entitled to redundancy pay. If you’ve been working for the company for less than two years, or you’ve had periods within those two years when you weren’t employed by them, you won’t be entitled to redundancy pay.

– You should be entitled to a redundancy payment if you’ve worked for the company continuously for two years either as a staff member or on a fixed term contract of at least two years.

– The minimum amounts vary from half a week’s pay for each year you were at the company if you’re aged 22 or under to one and a half weeks if you’re over 41.

– There’s information about what you’re entitled to at the redundancy section of the government’s Gov.uk website. Citizens Advice also has useful information. I’m linking to the home page because information is broken down into which part of the UK you’re based in.

– You don’t have to pay tax or National Insurance on your redundancy payments if they’re below £30,000, but you do have to pay tax and NI on unpaid wages or bonus payment. There’s more information on a redundancy factsheet at the HM Revenue & Customs website.

SAVVY TIP: We all know that some companies pay more than the minimum amount of redundancy pay, but most of them also have a pot of money set aside to increase their redundancy pay offers. Don’t feel you have to accept the first figure they come up with.

What happens if your employer goes bust?

If your employer goes bust and you’re owed wages, commission or a bonus, you may not get the money you’re entitled to.

– In theory you can claim up to eight weeks’ pay, six weeks’ holiday pay and up to 12 weeks in lieu of notice but if the firm has been struggling, there may not be enough money left.

– If that’s the case, you should ask for a direct payment from the National Insurance Fund. Write to your employer first of all. If they can’t pay you, you can get a form called RP1 from the insolvency practitioners appointed to deal with your employer’s company. There’s information about redundancy payment forms on the government-run Insolvency Service website.

SAVVY TIP: The maximum you’re allowed to claim is £430 a week (as of 1st February 2012).

– Some pay is given priority (it’s called a ‘preferential debt’), which means it should be paid ahead of money that’s given to other creditors.

What happens if your employer offers you a new job?

Your employer, a sister company or another firm that takes it over may offer you a new job, but it can’t be any old job. Instead it should be something you’re able to do.

– If the offer is made before your old contract runs out and the job starts within four weeks, you won’t get redundancy pay if you decide to go ahead and take it.

– You don’t have to make your mind up on the spot as you’re allowed — by law — to try out the new job for four weeks.

SAVVY TIP: If you don’t want to carry on after that your four-week trial period because the job needs different skills or is based miles away from your previous job you can turn it down and still receive any redundancy pay you were originally entitled to. But if you refuse the job just because you don’t fancy it or if you stick at it for more than four weeks, you’ll lose your right to any redundancy pay.

Related articles:

Protecting your finances if you’re facing redundancy

State mortgage support if you’re unemployed

What to do if you’re struggling with debts

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