Statutory Redundancy Pay to increase

23 04 2009

British Parliament

 

As you will probably have heard by now, the Chancellor announced an increase to Statutory Redundancy Payment in the Budget yesterday, from the current figure of £350 to £380 per week. He hasn’t said from when the new increase will take effect and the lower figure itself was only introduced in February this year.  The government is also considering further legislation on SRP rates in the next Parliament.

So, what does the increase mean?  SRP is only payable (by the employer) to employees with two years’ continuous employment experience and that figure is paid to employees between the ages of 22 and 41.  For qualifying employees over 41 they will receive 1.5 times £380 = £570.  For those under 22 the applicable figure becomes £190 per week.

SRP is, in reality, a cap.  If the employee earns less than £380 per week, assuming they qualify for SRP when made redundant, they will be paid their weekly salary multiplied by the number of complete years they have served with that employer.     The minimum annual gross salary needed in order to reach the cap is £19,760.  Many employers pay enhanced payments on redundancy, but these are usually discretionary and difficult to enforce legally unless there is a contractual entitlement. 

The Budget Report states (at para 5.27 p.96) that the increase is intended “to help provide adequate support for individuals who have been made redundant”.  For people receiving enhanced redundancy packages today’s announcement will seem academic. But for those smaller employers that can only afford to pay the “official” SRP this increase will be an added burden on them.  It is also hard to see how the increase will materially improve the financial position of employees suddenly finding themselves out of a job.

The TUC was campaigning recently for SRP to be increased to £500. The Chancellor clearly didn’t take their arguments on board and neither was he swayed to increase the maximum amount of tax relief from its current ceiling of £30,000 to £50,000. The HMRC currently allows a concession, pursuant to the Income Tax (Earnings & Pensions) Act 2003, whereby the first £30,000 of a compensation payment for loss of employment, can be paid free of income tax and national insurance deductions.  The limit has been set at £30,000 for many years now and an increase is long overdue.  Presumably the government thought that increasing that limit would be seen as benefiting the better off and thus politically unpalatable at the moment.   They probably also didn’t want to reduce the tax take at a time when redundancies are increasing massively and there is more pressure on the public purse.  However, increasing the tax free limit would do much more to help more people made redundant and reduce the burden on employers.

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