Redundancy payments: financial help is available

With the government’s job protection furlough scheme at an end there are fears that there may be more job losses on the horizon.

Employers facing tough decisions may not be aware that there is a government scheme in place that can help when it comes to making statutory redundancy payments.

The Redundancy Payments Service (RPS) operates a loans scheme. Its aim is to protect retained jobs that could also be at risk because of the expense of redundancies.

Employers can apply to the RPS, to make redundancy payments directly to their employees. They must demonstrate that they have exhausted all other funding options available before applying. Written evidence that they have done so is required.

As the employer, you are financially liable for payments to your employees. If the RPS makes the payments to your employees, it will create a debt to it and it may take enforcement action if it is not repaid.

What you must pay when making employees redundant

Most employees who have worked continuously for a business for two or more years will be entitled to statutory redundancy pay.

The amount each employee is entitled to is calculated based on their age, length of employment, and weekly rate of pay. If you make an application, a completed copy of this redundancy calculation is required.

Redundant employees may also be entitled to other payments, such as notice pay, and holiday pay. The RPS cannot make these payments – unless the company enters formal insolvency.

Who can apply:

Any employer not subject to formal insolvency proceedings can apply. This includes businesses that:

• are still trading
• have stopped trading but not entered formal insolvency
• are going to stop trading soon, but are not expecting to enter formal insolvency

Redundancy payments made by the RPS are subject to statutory limits. These include a maximum of 20 years redundancy and there is a cap on the weekly rate of pay.

If approved, statutory redundancy payments will go directly to the redundant employees. If an employer makes redundancy payments directly to the employees, they cannot be included in the application.

The RPS is not able to pay statutory redundancy payments to an employer. And it may require employees to apply to the employment tribunal before making any payments.

For more details about the RPS scheme visit www.gov.uk/insolvency-service or email redundancypaymentsonline@insolvency.gov.uk.

Under the Enterprise Act 2002, businesses may be able to use other, more appropriate sources of aid to help recover from financial distress. Further information is available from the Advisory, Conciliation and Arbitration (www.acas.org.uk) or Business Debtline (www.businessdebtline.org).

As a business in financial difficulty, it is your responsibility to consider whether it remains appropriate to continue trading and to seek professional advice if you are unsure.

• To discuss any issues raised by this article and for help and advice please contact me on 01772 430000.