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Temporary Pay Cuts and Redundancy Pay
November 2009
Q. We recently reduced our employees’ pay (with their consent) in an attempt to avoid to making redundancies. If, in the future, we still need to go down this route, how do we calculate any statutory redundancy payment? Is it on the reduced rate of pay, or at their original salary?
A. Employees are only entitled to a statutory redundancy payment (SRP) if they have completed two years service. It’s assessed at the rate that applied on the date that the notice of dismissal was given. This means that if there’s been a permanent variation to the employee’s contract, the SRP can be calculated on the new rate of pay. However, if you agreed that their pay would only be reduced temporarily, they’ll be in a much stronger position to argue that the SRP should be calculated using their original salary.
Tip. Since October 1 2009 the weekly statutory redundancy payment has been capped at £380pw (it was previously £350 pw). So if an employee earns over this amount, you don’t have to pay them, the balance.
Source: Tips & Advice Personnel October 2009
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