Severance package laws

What is severance pay? This is an American expression that has made its way into our daily lingo, which describes the unemployment compensation payable upon a worker being made redundant. The rules that will help you to calculate severance packages which are complicated, but an overview is set out below.

Eligibility

To be eligible for a redundancy payout, you have to be an employee - so not a freelancer, subcontractor, etc. - and must have worked for your company for more than two years. If you’re a contractor or agency worker but have worked for the company for this time, then you’re eligible for severance.

When do you get it?

You will only be eligible for a severance payment if you’re made redundant - losing your job through other forms of dismissal, or resignation, will not qualify you for a severance package. Under redundancy law, your employer has to consider redeploying you within the company. If a reasonable offer has been made and you have declined to accept it, you may lose your entitlement to a redundancy payout. Likewise, if you find a new job before your notice period expires.

Calculations

What follows is based on your statutory redundancy rights, which are set out by severance laws. It will not be legal to pay you less in the case of redundancy, but it is possible that your employment contract permits you a more generous package. The payment is based on your weekly gross pay, which means, what you earn before anything is deducted, up to a value of £400. Regular overtime pay and commissions Regular overtime pay and commissions are included in this calculation. Where earnings fluctuate, the aggregate over the three month period preceding redundancy, is used. The amount payable is then calculated according to the age of the employee. If under 22, they may receive half a week’s pay for each completed year of employment. Employees between 22 and 40 will receive a week’s pay, and those over 40, a week and a half’s pay, for each completed year of employment. This calculation is capped at 20 years. In addition, as notice of redundancy is required to be given, if the person is not longer required with immediate effect, and are not to work their notice period, they are entitled to payment in lieu of notice.