Unfair dismissal, redundancy and the minimum wage – new financial rates announced.

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Posted in:HR and Employment|February 27, 2014 | Join the mailing list

If you succeed in a claim of unfair dismissal, then you usually receive two awards, known as the basic award and the compensatory award.
 
The basic award is calculated by means of a fixed formula, using your age, length of service with your employer (up to a maximum of 20 years) and your gross weekly pay, but the amount of your weekly pay is capped and the current limit which is applied is £450.
Each year of employment below the age of 22 counts as 0.5 in the calculation, each year from 22 to 40 counts as 1 and each year at 41 or above counts as 1.5.

The maximum basic award is therefore currently £13,500 and this would apply where you have 20 or more years employment when you were aged 41 or above and you earn at least £450 per week.

The level of the cap on a week’s pay is regularly reviewed by the Government and on 26 February 2014 it was announced that an increase in the cap from £450 to £464 will be applied in respect of dismissals occurring on or after 6 April 2014.

The second award which is usually applied in successful cases of unfair dismissal is the compensatory award is that is usually assessed based on the financial loss which the dismissed employee has suffered as a consequence of the unfair dismissal. There is
also a cap which applies to the amount of this award, so that other than in very limited circumstances (such as where someone has been dismissed for blowing the whistle on unlawful activities) the maximum amount which can be awarded is whichever is the less
of one year’s gross pay for the dismissed employee or £74,200.

The cap on the compensatory award is also something which is reviewed regularly by the Government and it was also announced on 26 February 2014 that this too would be increased in respect of dismissals taking place on or after 6 April 2014.  The new cap which
will then apply will be whichever is the less of one year’s gross pay and £76,574.

If an employee with two years or more employment with their employer is made redundant, then they are entitled (in addition to any notice pay) to a statutory redundancy payment payable by their employer. The level of that payment is calculated using the same
formula as applies when calculating an unfair dismissal basic award. This therefore means that the current maximum statutory redundancy payment stands at £13,500, but as with the basic award this will increase in respect of redundancies taking effect on or
after 6 April 2014 to £13,920.

It also was announced on 26 February 2014 that the Low Pay Commission has recommended to the Government that the national minimum wage applicable to adults should be increased by 3% to £6.50 per hour from the current rate of £6.31, with the level applicable
to workers aged between 18 and 20 being increased by 2% from £5.03 per hour to £5.13 and with the rate applying to those aged 16 and 17 increasing from £3.72 to £3.79 per hour. 

The Government usually accepts the recommendations made by the Low Pay Commission and if accepted then these changes to the minimum wage rates will come into effect on 1 October 2014. 

For more information about any of the above or for practical commercial advice on this or any other aspect of employment law, please contact
Nigel Crebbin of the Berg Employment Team on 0161 833 9211 or email him at
nigelc@berg.co.uk. Follow us at Twitter:
@BergHR.

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)

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