REDUNDANCY PAY - 03.05.2013

Can you cut (statutory) redundancy pay?

Too many staff

A couple of weeks ago, the Chief Executive of Aviva, Mark Wilson, issued a statement which said that, in order to remain competitive, the company needed to save £400 million. As a result, a “difficult decision” had been made to cut 2,000 jobs across its workforce over the coming year. There’s nothing unusual about this statement - major companies make redundancies all the time - but what is interesting are the associated comments about the level of redundancy pay that the affected employees will receive.

Reduced redundancy pay

The company has indicated that it intends to “only pay two weeks’ redundancy pay on this occasion”. A number of media outlets picked up on this and their subsequent reports either gave the misleading impression that Aviva wasn’t going to be complying with its statutory obligations or that employers can pick and choose how much they give out in terms of redundancy pay. We thought we had best set the record straight, so what is really going on here?

Statutory entitlement

If an employee that you’re making redundant has been employed for two years or more, they’re generally entitled to receive a Statutory Redundancy Payment (SRP). The exact amount depends on their age, length of service (up to 20 years’ service can count) and gross weekly wage, which is currently capped at £450 p.w. When an SRP falls due, that payment is set in stone - you can’t reduce it, ask the employee to waive it or ignore it and do your own thing. It must be paid.

Enhanced redundancy rights

However, if you offer enhanced redundancy payment terms - which many employers do to tempt volunteers - you can change them as you wish, providing your redundancy policy makes it clear that such payments: (1) are always made entirely at your discretion; (2) are non-contractual; and (3) have no bearing on any redundancy exercises that you may undertake in the future. Our redundancy policy leaves no room for doubt here (see The next step).

A cause of confusion

In its redundancy statement, it is enhanced payment terms that Aviva is referring to - and that’s what has caused the media confusion. In previous redundancy exercises, it’s paid affected staff four weeks’ contractual pay for each complete year of service. This time around - to bring the total bill down - it’s going to pay two weeks’ pay for each complete year of service capped at 78 weeks in total (which is still significantly more than the statutory minimum).

Tip. Where you offer an employee enhanced redundancy payment terms, insist that they enter into a compromise agreement with you before parting with any money. Not only will that prevent them from claiming unfair dismissal and/or discrimination, they won’t be able to claim breach of contract once it’s paid. We’ll shortly be looking at the safest way to calculate enhanced redundancy payments.

For a free sample redundancy policy, visit http://tipsandadvice-personnel.co.uk/download(PS 15.10.06).