Enhanced redundancy payments policy

If you want to provide for enhanced redundancy pay (ERP), it’s useful to have a policy setting out how the payment will be calculated.  It’s better to ensure that you base it on the statutory redundancy payments (SRP) scheme and express it to be entirely discretionary and non-contractual.

No contractual commitment

Be careful about committing yourself contractually to providing ERP. Even if your policy isn’t contractual and is expressed to be entirely discretionary like our Enhanced Redundancy Payments Policy, if you always pay ERP on every redundancy exercise, it’s arguable it may have become a contractual right by custom and practice. 

Age discrimination

An ERP scheme, whether discretionary or contractual, also needs to comply with the Equality Act 2010. The Act permits you to calculate ERPs provided that the calculation is based on the SRP scheme. Redundancy pay under the SRP scheme is calculated according to the employee’s age, length of service and gross weekly pay. Under the SRP scheme, a qualifying employee is entitled to receive:

• half a week’s pay for each complete year of continuous service in which the employee was aged 21 and under;

• one week’s pay for each complete year of continuous service in which the employee was aged 22 to 40 inclusive; and

• one and a half week’s pay for each complete year of continuous service in which the employee was aged 41 and over.

The maximum number of years that can be taken into account in calculating SRP is 20 and a week’s pay is subject to a maximum amount.

The Act allows you to enhance the SRP scheme by one or both of the following:

• treating a week’s pay as being uncapped, or subject to a maximum amount which is above the current limit.

• multiplying the appropriate amount allowed for each year of employment by a figure of more than one. In this case, the same multiplier must be applied to each of the three age bands. 

Finally, regardless of whether the above two enhancements have been applied, you can apply a multiple to the total redundancy payment, which must be the same for all employees. Our policy covers all of these options.

Other exceptions

The Act also allows you to make a redundancy payment to an employee who has taken voluntary redundancy or who has less than two years’ employment. In such cases, you may make either a payment equivalent to the SRP or an ERP in accordance with the provisions outlined above. Again, our policy covers this.

Written details

You’re under a statutory duty to supply the redundant employee with a written statement indicating how the amount of the redundancy payment has been calculated. This applies whether the payment is an SRP or an ERP.  

A warning

ERPs that are not based on the SRP scheme may amount to age discrimination unless you can objectively justify them.  In this case, you would need to rely on the test of objective justification set out in the Act. In particular, it will be difficult to justify directly discriminatory elements of a scheme, such as upper or lower age limits or age bands that differ from the three age bands used under the SRP scheme.