Enhanced redundancy packages explained

The first payment to include in a redundancy package is the statutory redundancy payment. This must be paid to all eligible employees and the amount is set by legislation. Other mandatory payments on termination would also include accrued but untaken annual leave and unpaid wages. Some employers, where the contract allows, may make a payment in lieu of notice.

Importantly, unless there are contractual enhanced redundancy terms, then it is entirely at the employer’s discretion on whether to offer anything above the statutory redundancy minimum terms. Enhanced redundancy packages may also include an agreed reference (beyond the standard factual), allow employees to continue to use their company benefits after termination, payment for a discretionary bonus and/or under a company share plan and a termination payment for loss of office.

When considering termination payments, its important to remember that payments up to £30,000 are generally viewed as tax free. Employees are likely to be focusing on how much money will be in their hand when their employment ends. The employer may have policies which dictate how the termination payment amount is set, one example could be 1 weeks’ pay for every year worked.

However, financial constraints may mean that enhanced redundancy package payments set at previous levels are no longer viable and a new method may be necessary. If this occurs, then the key is how this is communicated to the employee. Employees may feel aggrieved and challenge the decision, which may involve submitting subject access requests.

Challenges on enhanced redundancy payments are not unusual and have been pursued to the Court of Appeal where employees consider there to be a custom and practice around the payments. Employers should also consider the risks of age discrimination when setting the criteria for enhanced redundancy calculations.  Clarkslegal can assist both employers and employees in the decisions to make or negotiations relating to enhanced redundancy packages.

If enhanced redundancy packages are offered, then best practice would be to offer it in a settlement agreement.

Further information