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Statutory Redundancy Pay Increased

United Kingdom
Written by
Lewis Silkin, widely recognised as the UK’s leading specialist employment law practice.
Announcement of the UK statutory order that sets out that the weekly pay limit used to calculate statutory redundancy payments is going up from £350 to £380. This entails a one-off increase taking effect on 1 October 2009.

The weekly pay limit used to calculate statutory redundancy payments is going up from £350 to £380. This one-off increase is set out in a statutory order taking effect on October 1, 2009.

When dismissed on grounds of redundancy, employees in the UK with at least two years’ service are entitled under the Employment Rights Act 1996 to a payment based upon their age, length of service and gross weekly wage. For these purposes, however, weekly pay is subject to an upper limit which is normally increased in February each year in line with the Retail Price Index (RPI).

The one-off increase was first announced by the Chancellor, Alistair Darling, in his 2009 Budget speech in April. It will mean that the maximum possible redundancy payment will be £11,400. This is intended to provide greater support for employees made redundant as a result of the recession without placing too heavy a burden on employers. (Employees are, of course, sometimes entitled to significantly more generous payments on redundancy under the terms of their employment contracts.)

The downside for employees is that there is to be no further increase in the weekly limit until February 2011. In other words, the annual uprating in line with the RPI will be suspended for next year.

The amount of the statutory increase will disappoint many trade unionists and Labour MPs, who had been lobbying for the limit to rise to somewhere in the region of £500. They have pointed out that, when the statutory redundancy pay scheme was first introduced in 1965, the maximum was over 200% of average weekly earnings. It is now less than 60%.

The £30 increase will apply for the purpose of calculating certain other statutory compensation payments too – most significantly, the “basic award” element of compensation for unfair dismissal.

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