Non-statutory redundancy pay

By Tolley in association with Sue El Hachmi of Osborne Clarke LLP

The following Employment Tax guidance note by Tolley in association with Sue El Hachmi of Osborne Clarke LLP provides comprehensive and up to date tax information covering:

Non-statutory redundancy pay
Tax position of non-statutory redundancy payments
Is the payment a genuine redundancy payment?

Redundancy payments fall into two categories; statutory payments and non-statutory payments.

Statutory redundancy is the amount which must be paid by the employer to the employee under employment law and will be a fixed amount for each year of service. Statutory redundancy pay is usually exempt from tax (see the Statutory redundancy pay guidance note).

An employee may also be entitled to a redundancy payment in accordance with the express terms of his contract of employment or he may be able to claim an implied contractual right where the payment of a specific amount on redundancy by an employer has become contractual through custom and practice. An employer may also offer a non-statutory redundancy payment where no scheme is in place.

Where an employer’s redundancy policy is stated to be discretionary, the contractual position will need to be carefully checked. It is not uncommon for employers to require employees to enter into settlement agreements (whereby, an employee waives specific claims against an employer) in return for a non-statutory redundancy payment.