News

Employment Law Update (May 2009)

Redundancy payments to increase

In a surprise announcement in April Budget, the Chancellor, Alistair Darling, set out proposals to increase statutory minimum redundancy payments.  The date the change will take effect has not yet been announced, but the most likely date is on 1st October, in line with the government's stated aim to introduce new business legislation in April and October each year.

Statutory redundancy payments are required to be paid by the employer but are subject to a legal minimum amount. The amount paid depends upon:

  • The employee's age;
  • His or her length of service with the employer;
  • His or her weekly pay.

In calculating the employee's weekly pay, employers can currently disregard pay in excess of £350 per week.  Under the Chancellor's proposals, the amount to be disregarded will change to anything in excess of £380.

The changes will increase the possible maximum amount of statutory redundancy pay to £11,400 from £10,500.  The previous change, on 1st February 2009, increased the payment from £9,900.

Should I take action now to avoid the increased payments?

The change will clearly represent an additional cost to employers of making redundancies, but employers should be wary of making quick decisions on redundancies or speeding up any ongoing redundancy process to try and avoid the increased payments.  This is because:

  • You should make any decision on redundancies as a way of getting your business the right size and shape for the future.  Small cost savings on redundancy payments should not influence you to take a quick decision that may be wrong for your business;
  • There are strict rules on consultation prior to making any employee redundant, as well as processes and procedures which should be followed to avoid claims for unfair dismissal.  The potential costs of getting these things wrong far outweigh the additional redundancy payments which you may have to make.

As always, our Telephone Advice service is available to discuss these matters with you, and we recommend you discuss the options with us before you make any decision on redundancies.