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Redundancy Package

These fall in three main categories

  • Voluntary Redundancy Package – offered to reduce the workforce
  • Statutory Redundancy Package – minimum by law which can be offered
  • Contractual Redundancy Package – written into your contract of employment

A redundancy package can depend where you are situated at corporate level, if you are a company director you may well have a negotiable contractual redundancy package built into your terms of employment. If you are middle management you may well have some form of enhanced non – negotiable contractual package built in. However for many employees the last thing they think about when gaining a position with a new company is the possibility that you may be made redundant. You may well have not read you employment contract initially, only to find that your contractual redundancy package is no more favourable than a statutory redundancy one.

Voluntary Redundancy Package

This is something which is offered by companies primarily when they are looking to reduce the workforce by encouraging necessary redundancies to be managed in a controlled way.

These packages may include enhanced redundancy payments for instance in your contract of employment you may be offered one week pay for each year you have been employed, this is in line with statutory redundancy payments. You may have been offered more; you need to check you contract of employment

To encourage you to take voluntary redundancy you may be offered up to four times statutory redundancies pay. So for instance if you have worked for 5 years and are 41 you will instead of the statutory payment of 5 weeks pay you may be offered 10 – 20 weeks of pay. This may be attractive to you if you have been thinking of changing you career and may give you the finances to give it more thought.

Other enticements may include the use of the company car for the next few months or continued health care payments for the same sort of period. These can be considered an additional benefit and valuable to an enhanced incentive.

Statutory Redundancy Package

The statutory redundancy payment is the least you can receive as an employee from your company, unless the company you work for has become insolvent. In contractual redundancy packages you may be entitled to two weeks pay for each year you have worked, but currently £380 is the statutory maximum.

If you are being paid only the statutory amount, this will be governed by:

  • How long you have been continuously employed by your employer
  • How your years of continuous service relate to a particular age band
  • Your weekly pay, up to a legal limit, this was last revised on 1st October 2009 to £380.00.
  • The amount is capped to 20 years of service time worked after this period does not add to your redundancy payment

The amount of Statutory Redundancy Pay is calculated as:

  • Half a week’s pay for each full year of service where age during year less than 22
  • One week’s pay for each full year of service  where your age during the year is 22 or above, but less than 41.
  • One and a half weeks’ pay for each full year of service where your  age during the year is 41+

As from October the 1st 2009 the maximum payment which is taken into account when calculating payments is £380. The number of years taken into account is capped at 20 therefore even if you have worked for the same firm for 30 years the extra ten years will not be included in the calculations.

Contractual Redundancy Package

If you are on the board of directors of a company or upper management you will probably have negotiated a favourable redundancy package for your self in the event of being made redundant prior to joining the company. Initially a redundancy offer will be made which will then need to be negotiated. If this is not done correctly or with the help of a solicitor you may find if you are made redundant that loop holes may be found with huge financial implications. This package will have been negotiated and probably be linked to performance and achievement; these often   include the use of a company car, a lump sum bonus and possible health benefits as well. You do need to make sure you do not leap at the first redundancy offer made as this is often initiated to test the water.

The majority of the people who join a company or large organisation will be offered some form of enhanced redundancy payment. This can  involve a lump sum payment and enhanced pay offer .The redundancy offer will not be open to negotiation as this will be a blanket agreement across the organisation and the employer will not be expecting any part of it to be changed.

Organisations who have to make redundancies and who have offered enhanced payments may ask employees to sign a compromise agreement.

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