We are in the process of making an employee redundant. What is the correct calculation date for a calculating a week’s pay for the purposes of redundancy pay? How is a week’s pay calculating for an employee on a zero-hour contract and if the employee has been working fewer hours during the period leading up to termination will that affect their statutory redundancy payment?

Calculating statutory redundancy pay

Under Section 162 of the Employment Rights Act 1996 (ERA 1996), a statutory redundancy payment is calculated by:-

  • determining the employee's number of complete years of continuous employment ending with the 'relevant date', and
  • allowing the appropriate number of weeks for each year
  • multiplying that total number of allowed weeks by the current figure for a week's pay, calculated in the usual way, subject to the statutory cap, which is £571 per week from 6 April 2022 (new limits on statutory redundancy pay will come into force on 6 April 2023 – amount to be confirmed)

The relevant date

As a general rule, the ‘relevant date’ for these purposes will be the date on which employment is effectively terminated, except:-

  • where the employee dies before notice given by the employer expires, in which case the relevant date is the date of the employee's death, or
  • where the employer terminates the employment contract and failed to give the required statutory minimum period of notice, in which case a later date will apply for two specific purposes only, namely:
  • calculating the two years' qualifying period for a statutory redundancy payment, and
  • computing the length of service in calculating the amount of the redundancy payment

A week’s pay

For these purposes a week’s pay is calculated in accordance with s220-229 ERA 1996. he method of calculation varies depending on whether the employee has normal working hours or no normal working hours.

In the case of an employee on a zero hours contract who has no normal working hours, a week’s pay for these purposes is the amount of the employee’s average weekly remuneration in the period of 12 weeks ending:

  • where the calculation date is the last day of a week, with that week, and
  • otherwise, with the last complete week before the calculation date

Weeks in which no remuneration is earned (e.g. because the employee does not work every week or has been away on unpaid leave) do not count for the purposes of this calculation: instead, it is necessary to count only those weeks in which remuneration is earned, until 12 such weeks are taken into account. Weeks during which the employee was on maternity leave or other types of family-related leave and received less remuneration to be disregarded.

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Motor Industry Legal Services provides fully comprehensive legal advice and representation to UK motor retailers for one annual fee. It is the only law firm in the UK which specialises in motor law and motor trade law. MILS currently advises over 1,000 individual businesses within the sector as well as the Retail Motor Industry Federation (RMI) and its members.