Fears That Redundancy Law Changes May Lead to Increased Job Losses

Redundancy LawGiven the current financial climate, it may not have been the best time for the law to change regarding statutory payments for redundancy. With the economy already suffering an increasing number of job losses week on week, there are fears that this new increase to statutory redundancy payments may result in an even sharper rise in the number of people being made unemployed.

Redundancy pay is calculated on the basis of age and length of service. The number of weeks pay is multiplied by the current statutory rate. The law currently states that an employer is obliged to pay employees up to £330 per week if they are made redundant after two years of continuous service. There are further criteria that are taken into consideration which an employer has a statutory duty to be mindful of.

These are:

Employees under the age of 22

Staff members who are under the age of 22 at the time of redundancy will be entitled to 50 percent of the weekly wage that is given for each year of full service. For example, if they were to be made redundant after three years of continuous service, they would be entitled to a redundancy payment of £495, provided their weekly wage was £330 or more.

Employees aged 22 to 41

These staff members are entitled to the standard rate of weekly pay. Therefore, for three years of continuous service, employees would receive a payment of £990. Again, they would need to have been earning at least £330 per week to receive this maximum payment.

Employees aged 42 and over

The law dictates that employees who are over the age of 42 will be entitled to 150 percent of the standard weekly rate per full year of service in the event that they are made redundant. Three years of continuous service would equate to a redundancy payment of £1,485.

From 1 February 2009, the standard payment rate is set to increase to £350 per week. This could entice employers to commence redundancy action against their staff members sooner rather than later, hence the concern that this may lead to a sharp increase in the number of people being made redundant before this new law becomes applicable.

The maximum statutory redundancy payment will also see a rise, from the current £9,000 to £10,500, as of 1 February.

If employers feel that it is necessary to dispense of a number of staff in order to better balance the company accounts, these figures can represent quite significant savings, and this is the specific point that is of most concern. One or two redundancies within a company may not amount to that much, but when a company needs to make larger numbers of employees redundant it will inevitably take advantage of these lower rates to do so. This, in turn, will provide the company with the crucial savings that it needs in order to ride out this current recession in a more financially viable position.

Let us hope that these fears prove to be unfounded as we learn of the unemployment figures for January 2009. All of this will depend on employers realising the fact that the law is about to change, and there is always a very strong possibility that this may not be the case.