In the current economic climate it is important employees are aware of their redundancy entitlements. Contracts of employment may set out contractual entitlement in the event of redundancy and many large employers have enhanced redundancy packages. But what happens if the employer is insolvent or there are no contractual rights in place in respect of redundancy.

Where this happens, employees are only entitled to a statutory redundancy payment.  This is based upon a maximum amount which currently stands at £330 per week.  To qualify for a redundancy payment the employee must have been employed for 2 years, and the payments due are based upon length of service and age.

An employee under 22 with 2 years service will get 1/2 weeks pay per year of service, whilst those between the ages of 22 and 40 will receive 1 weeks pay per year and anyone aged 41 and over will receive one and 1/2 weeks pay per year of service.
Redundancy payments of up to £30,000 in any year are free from Tax and National Insurance deductions.

If the employer is insolvent, all redundancy payments have to be claimed from the National Insurance fund via the Redundancy Payments Office.  In this situation, the employees would be supplied with an RP1 form by the Official Receivers. the RP1 form allows employees to claim not only redundancy pay but also unpaid wages, holiday pay, and notice pay.  It is worth noting that in the majority of insolvency cases employees are told on the day of their redundancy and are not given any notice.

It is important to bear in mind that claiming via the National Insurance fund could mean a delay in redundancy pay being received; most claims take between six and eight weeks to be processed. If employees are unable to secure a new job after redundancy they should ensure that they claim job seekers allowance, plus any other benefits which they might be eligible for.

If, as an employer, you have any queries on this topic, please contact Denise Love at dlove@menzies.co.uk