Release date: October 2009

In April's budget statement the Chancellor announced that the limit on weekly pay taken into account in calculating statutory redundancy pay is to be raised from its current level of £350 to £380.

But what the Budget did not mention is that the increase will also affect compensation payments in unfair dismissal cases. That is something that only became apparent in October 2009 when the government published further information about the change and its likely impact on employers.

Redundancy pay
The uplift in the cap on redundancy pay is a one-off rise which took effect on 1 October. The change will benefit anyone earning above £350 per week who is made redundant in or after October this year. So, for example, someone aged 45 with 10 years' service who is earning £500 per week would be due £4,200 at present rates. From October the same individual would be entitled to £4,560. The maximum statutory redundancy payment will go up from £10,500 to £11,400.

The Government's own estimates place the cost to business of this increase in redundancy pay at more than £70m a year. For firms fighting to save their businesses the government's impact assessment recognizes that the temptation may be to select cheaper workers for redundancy to avoid being affected by the change. Consequently, younger and lower paid workers could find themselves targeted ahead of older or better paid colleagues.

Unfair dismissal compensation - going up
Employers counting the cost of increased statutory redundancy payments will be dismayed to learn that unfair dismissal compensation has also gone up from October. On the government's own figures that adds an extra cost of over £14m a year for employers.

The increase affects the basic award element of unfair dismissal compensation. Like redundancy pay, this is calculated by reference to age, length of service and weekly pay, with the amount of pay taken into account being capped at £350, soon to be increased to £380.

Please contact Chris Wiper, Senior Partner at Close Thornton, on any matter relating to employment law. 01325 466461 or Chris Wiper

BACK