Changes in Weekly Pay - The Facts

The increase in the maximum amount of a ‘week’s pay’ on 1 October 2009 from £350.00 to £380.00 will see employers paying out more when making redundancies.

The concept of a capped level of weekly pay is applied when calculating statutory redundancy pay.  It also applies to certain other compensatory payments, such as to what is known as the ‘basic award’ element of unfair dismissal compensation, and to some payments made to employees by the State when an employer becomes insolvent.

Traditionally, the cap on weekly pay for these purposes increases on 1 February each year.  However, this year the Government has increased the figure for a second time in order to provide some additional assistance to employees affected by redundancy.  The increase benefits employees who are dismissed on or after 1 October.  However, there will now be no further increase in the figure until February 2011.

Due to the way statutory redundancy pay is calculated, the maximum overall increase in statutory redundancy pay for any one employee will be £900.00.  However, the impact on most payments will be modest, and employees who earn less than £350 will be no better off at all.

Calculating the amount an employee earns in a week is fairly straightforward if his earnings do not vary from week to week, but in the case of an employee whose earnings do vary, perhaps due to the number of hours worked or due to piece work, the calculation of a week’s pay can be very complicated.  Any employer who is unsure about an employee’s entitlement upon redundancy should take advice to avoid later claims for outstanding payments.  It is also prudent to take advice about redundancy selection as a whole in order to minimise exposure to awards for unfair dismissal and unlawful discrimination; and also, where 20 or more employees are proposed to be dismissed within a 90 day period, to avoid ‘protective awards’ of up to 90 days’ pay per affected employee.