Redundancies and downsizing are unfortunate, but often an inevitable measure for a business, especially in the current economic climate. There are, however, many factors that you have to take into account with your redundancy policy, one of the most important of these being redundancy pay. It is important to get the correct facts, figures and documentation in place so that you don't pay too much or get into a position where employees have grievances because of too little or a complete lack of pay. Knowing exactly where you stand and having your paperwork in good order will pay dividends in terms of redundancy planning and how you proceed.

What is Redundancy Pay?

Employees have the right to a redundancy payment if they have worked continuously for at least two years or if an employee is on a fixed-term contract of two years or more that expires and is not renewed. As an employer, you only have to pay redundancy if you make someone redundant. If they come to the end of a fixed term contract that is not renewed or the employee resigns, they have not been made redundant and are therefore not eligible for redundancy pay. Redundancy pay may also not necessary if you offer alternative work, or work at a different site within a reasonable distance of travel for the employee.

How much is redundancy pay?

Redundancy pay owed to employees depends on a series of factors, and it's best to include these calculations in your redundancy procedures. The total amount is dependent upon how long the employee has worked for you, their age and their weekly wage, up to the lawful limit (current maximum £330, £350 from 1 February 2009). This includes: half a week's pay for each complete year of continuous service below the age of 22, a full week's pay for each complete year of continuous service between the ages of 22 and 40, and a week and a half's pay for each complete year of continuous service above the age of 41.

Are there any exceptions?

Most exceptions, changes to the statutory rules or differences in redundancy pay rates come from contractual stipulations. Some stem from the relative rates of time given for finding another job, others from the notice period that you have to give an employee. If you have stated that you will pay more, or that certain options are available to both parties, i.e. payment in lieu of notice period, these come into effect and some supersede the statutory limits, requirements and timescales. It is best in such cases to double check and to have in place a redundancy policy that covers all eventualities.

To maintain the flexibility of changing employment needs, it is always best to have clear redundancy procedures and policies in place. With the world economy fluctuating hugely almost daily, the better prepared to both take on and layoff greater numbers of employees you are, the more likely to weather the current economic storms you will be.