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How to Make Redundancy Payments

Calculator_TaxAgility Accountants LondonIf you’re the owner of a small to medium-sized business (SME) you may be lucky enough to not have had to make a single employee (or group of employees) redundant as of yet.

This luck, however, may well change over the coming months and years, and though you’ll by no means want to place your focus on this negative train of thought, when you know the implications of such a situation ahead of it occurring, you’re better placed to deal with the consequences once you’re put in a situation that requires you to go down this path.

Selecting Employees for Redundancy

If you’re required to make an actual position (or entire operation) within your business redundant, then every employee in this position will have fairly and objectively been selected for redundancy.

If, however, only a certain number of employees within a particular position need to be made redundant (often as a response to budget cuts or a reduction in company income), the most common, objective, and fair way of selecting employees for redundancy are:

  • Self-Selection: When you ask for volunteer redundancies you can save your employees a lot of heart-ache if there are others who are happy and willing to accept redundancy at this time.
  • Last In: The last in, first out selection process is deemed fair in most industries.
  • Looking over Disciplinary Records: Another selection process that’s hard to argue against.
  • Overlooking Skills, Qualifications, and Experience: Ensuring you keep on your most skilled and experienced workers.

When selecting employees for redundancy it’s imperative that any choices you make can’t be classed as unfair dismissal.

Redundancy Payment Breakdowns

Your employee(s) will be entitled to statutory redundancy pay if they’ve been working for your company for upwards of two years. Any redundancy pay your employee receives from you won’t be taxable so long as it totals under £30,000.

Depending on how long your employee(s) has been with you, you’ll have to pay out the following:

  • Half a week’s pay for each year (full year) in which they were under the age of twenty-two.
  • One week’s pay for each year in which they were between the ages of twenty-two and forty.
  • One and a half week’s pay for each year in which they were forty-one and above.

You can calculate your employee(s) redundancy pay using this government-provided tool.

Finding Suitable Employment Alternatives

If you’re required to make an employee, or number of employees within your SME redundant, you should put some serious thought as to whether or not you can provide them with ‘suitable alternative employment’ in another area of your business, or an associated organisation.

The suitability of any employment alternatives you make to your employee(s) will be based upon the similarity of the new job compared to their previous role, the acceptability of the job’s terms, the similarity of the required skills for said job, and the rate of pay, benefits, working hours, and work location.

If your suitable employment alternative(s) are turned down by your employee(s), they may lose their right to statutory redundancy pay.

Notice Periods

You are legally contracted to give your employees the following notice periods before ending their employment through redundancy, though you may provide your employees with more than the below-stated minimums if you so wish:

  • One week’s notice for employees employed between one month and two years.
  • One week’s notice a year for employees employed between two and twelve years.
  • Twelve week’s notice for employees employed twelve years and above.

Making Redundancy Payments

To speak with a professional to discuss how to make redundancy payments and what you owe your employees, as well as the tax implications regarding any payment made over £30,000, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

 

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

 

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