Increase in statutory redundancy rates - an explainer

When a company enters formal insolvency and employees are going to be made redundant, they’re entitled to receive payments from the Redundancy Payments Service rather than sitting in the pot with the rest of the creditors.

 

The Redundancy Payments Service is backed by the National Insurance Fund, which then takes the employee’s place as an official creditor of the company.

What does the increase mean for employees?

 

From 6th April 2018 the statutory cap on the level of redundancy payments will increase from £489 to £508 per week to take into account wage growth and inflation. 

 

This applies to claims for unpaid wages, holiday pay, redundancy pay and compensatory notice pay.

 

The increase will only affect employees who are paid in excess of £508 per week, meaning those who are on a salary exceeding £26,500. The illustration below gives an example of how the changes could affect a 40 year old employee who has been employed for 10 years earning £600 per week. The Illustration assumes a month of unpaid wages and 2 weeks outstanding holiday and is before deductions for tax and notice mitigation.

 

Previous Limit      New Limit     
Redundancy £4,890 £5,080
Compensatory Notice Pay                     £4,890 £5,080
Unpaid Wages £2,119 £2,201
Holiday Pay £978 £1,016
Total £12,877 £13,377

 

As can be seen in the example, an employee in these circumstances would now be around £500 better off, before tax, under the new limits. 

 

For more information about the redundancy process or the liquidation of your company please get in touch with us.