How to Calculate Redundancy Payments
Myers, Fletcher & Gordon has included a redundancy calculator on its website. This comes as businesses continue to cut jobs in response to the coronavirus pandemic.
Although the formula for redundancy is set out in the Employment (Termination and Redundancy Payments) Regulations of 1974, we find that approximately 60% of the calculations that we are asked to review, are inaccurate. The redundancy calculator will, hopefully, be a useful tool to employers and employees alike in these difficult times. It does not apply to seasonal employees.
There are four main mistakes that employers tend to make when calculating redundancy payments.
- One month is not equal to 4 weeks
By far the most common mistake is treating 1 month as equivalent to 4 weeks and consequently dividing the monthly salary by 4 to get the weekly salary. Of course, some months have 5 weeks whilst others have 4 weeks. If every month had only 4 weeks, then a year would have 48 weeks instead of 52. If you’re using the monthly salary to compute redundancy payments, you need to first calculate the annual salary and then divide it by 52 to get the weekly salary. In our redundancy calculator, you have the option of entering the weekly, monthly or annual salary.
- Rounding-up and down
Another frequent error is disregarding the years of service in between anniversary dates. Our law allows you to round-down to the previous anniversary year if the employee has not exceeded 13 weeks of service between their anniversary date and the effective date of the redundancy. If the employee has more than 39 weeks of service since their last anniversary date, they are rounded-up to a full year of service. Anything in between 13 and 39 weeks is treated as a half-year of service. These fractional calculations only apply if the employee qualifies for redundancy in the first place by having 104 consecutive weeks (or 2 calendar years) of uninterrupted service. Seasonal employees, whose service is regularly and predictably interrupted are also entitled to redundancy pay, however, the method of computing it is different than what is set out above and is not included in MF&G’s redundancy calculator.
- Commission-based remuneration
By law, if an employee’s earnings include commission, then the weekly salary is defined as the normal wages earned in the last normal week of employment before redundancy or the average normal wages earned in the last 13 normal weeks of employment before redundancy, whichever is greater. What constitutes the last normal week of employment in the context of this pandemic and the layoffs that it has occasioned, is a matter that requires analysis on a case-by-case basis by an attorney who practices labour law.
- The relevant date
The “relevant date” for purposes of redundancy is the date that the redundancy is deemed to take effect and the employment relationship is ended. That is often the same date that notice of termination is given if the employee agrees to, or is contractually obligated to accept pay in lieu of notice. If, however, the business gives notice without payment in lieu, or if the employee rejects the offer of pay in lieu of notice, then the relevant date will be the date that the notice expires. For example, if an employee is given notice of termination on Wednesday September 30, 2020 and they are entitled to 3 months’ notice, then unless they accept a payment in lieu of notice, the relevant date would be December 30, 2020 and their years of service would be reckoned until that date.
In the case of an employee who elects to be dismissed by reason of redundancy after being laid-off for more than 120 days, it is the employee (and not the business) that selects the relevant date. That date must be between 14 and 60 days from the date of the employee’s election. For more guidance on how to make that election, refer to the footnotes on the Redundancy Election Template found in the Resource section of MF&G’s website.
There is a short 6-month limitation period, starting on the relevant date, to bring a redundancy claim. If you have paid or received a redundancy payment that is not approximately the same as indicated in our redundancy calculator, you should speak with a labour law attorney immediately. MF&G’s redundancy calculator can be accessed using the link below:
Gavin Goffe is a partner at Myers, Fletcher & Gordon, and is a member of the firm's Litigation Department (Labour and Employment Law Practice Group). He may be contacted at firstname.lastname@example.org. This article is for general information purposes only and does not constitute legal advice.