Redundancy payments

Redundancy payments

If all procedures appear to have been complied with, and your dismissal appears to be as a result of a genuine redundancy, you will be entitled to a statutory redundancy payment as long as you have been employed more than 2 years. The statutory redundancy payment is based upon your age, gross weekly salary and length of service. From 6th April 2015, there is a cap of £450 a week when calculating your gross weekly salary and the total maximum statutory payment is capped at £14,250. Often, however, your contract of employment will provide for a more generous redundancy payment, and even if it does not, it may be the custom and practice of your employer to pay an enhanced redundancy. If this is the case, the higher redundancy payment should be made, rather than the statutory amount.

Often it is possible to negotiate a global severance payment in any event with your employer, especially where there are question marks over the validity of the redundancy. Employers are usually keen to settle where this is the case. Professional advice should preferably be sought in connection with such negotiations, and is essential where you are asked to sign a Settlement Agreement setting out the terms of settlement.


As far as notice is concerned, this is normally governed by contract, but in any event, employees are entitled to the statutory minimum of 1 weeks notice for up to 2 years service, and then 2 weeks for every 2 years worked, 3 weeks for every 3 years etc, up to 12 weeks for 12 full years worked. Often, employers make a payment in lieu of notice as part of the severance packet. This can be negotiated to be paid without deduction of tax (only up to £30,000), as long as the contract does not make a provision for the employer to make a payment in lieu of notice. If there was such a provision in the contract, the tax must be deducted on such payment in the normal way.


Where an employee is made redundant shortly before a bonus entitlement is due to be paid, a question that is often asked is what obligation is there on the employer to adhere to the bonus arrangement. There are many different types of bonus schemes. Some are commission related, which are based upon specific contractual formula, and others purely on the basis of performance, in the discretion of the employer. Often in this latter type of arrangement, employees are not even aware of the basis of the calculation upon which the bonus is paid. The actual discretion may link to individual performances, the company’s performance as a whole or simply give the employee the right to a discretionary bonus “on terms to be notified to the employee from time to time” with a separate document listing criteria or a specific formula.

If the bonus is expressed to be contractual, then it should still be paid notwithstanding the actual date of dismissal (pro rata if the dismissal falls before the year end).

If the bonus is discretionary, the position is more difficult. Certainly, if your employer has by custom and practice paid bonuses to employees where they have left employment before the year end bonus has been determined, then you should also be paid such bonus in line with this practice. Recent cases have, furthermore, put discretionary bonuses under the spotlight and which have shown that employers may not have as much unfettered discretion as they think. In the case of Clark-v- Nomura, the employee’s bonus was discretionary. It was not guaranteed in any way, being based upon individual performance. That performance was good. The employee was nevertheless dismissed shortly after the year end with no bonus having been paid. The courts awarded the employee substantial damages, largely reflecting the bonus that would have been paid holding that “an employer would be in breach of contract in relation to an unfettered discretion if no reasonable employer would have acted in that way”.

It should be noted that where a general discretion is stated in the contract, and the employer seeks to withdraw the scheme during the bonus period (especially where redundancies are being planned), this is likely to be a breach of contract. If there is to be a withdrawal or amendment, this should take place at the end of the bonus year and only apply to future entitlement.