The number of taxpayers disclosing lump sum redundancy payments over the £30,000 tax-free threshold fell by 51% from 2014-15 to 2021-2022, the legal services provider found when analysing detail from a Freedom of Information request to HMRC.
The Nockolds team also discovered that taxpayers who had disclosed enhanced redundancy payout amounts under £30,000 (the tax-free threshold) had declined by 48%.
This decline is despite a rise in the number of redundancies during the height of the Covid-19 pandemic, and the tax-free threshold having been frozen since 1988.
Alexandra Mizzi, legal director at Howard Kennedy, told HR magazine that employees might struggle to bring a tribunal claim against employers because there is no legal obligation for them to offer enhanced redundancy payments.
She said: “The fact that fewer employers are offering them may reflect the reality that if a redundancy is genuine and the employer has undertaken a fair process, the employee may find it difficult to bring an employment tribunal claim, unless there is an element of discrimination or the redundancy is a sham. For example, if used to exit a whistleblower."
She added that the offer of an enhanced redundancy payment by an employer should be subject to entry into a settlement agreement to protect them against future claims and to keep the payment confidential.
Neil Morrison, HR director at Severn Trent, told HR magazine that employers should communicate their redundancy terms with their employees.
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“Being made redundant can be a traumatic experience for employees. The more certainty an employer can give the better, which includes clarity on the financial terms and the process.
“Agreeing those terms with workforce representatives or trade unions and applying them consistently, unless in extreme circumstances, is part of being a responsible employer and allows colleagues made redundant to leave with dignity, security and the chance to find new employment as soon as possible.”
Joanna Sutton, principal associate at Nockolds, suggested that employers might be less likely to make redundancy payments because of the difficult financial circumstances they face.
She said: “Whereas redundancy was once the preferred option to exit less-able staff, now employers may be more inclined to rely on poor performance as a reason to terminate.
“As the economic malaise continues to bite, employees may need to revise their expectations about what they are likely to receive in the event of redundancy and accept that bumper payouts may be a thing of the past.”
Read more: Bankruptcy and redundancy: how to communicate with staff
Sutton added that employers are likely to have long-serving staff who are contractually entitled to enhanced redundancy while more recent employees are not; this can create an expectation that enhanced redundancy will continue even if it is discretionary.
She commented: “This is a trap many employers fall into, which can spark claims from disgruntled employees who receive less than they were expecting.
“As contractual enhanced redundancy pay used to be much more common, this may result in a two-tier workforce in which older workers may be more likely to be eligible for generous payouts.
“This can spark age discrimination claims from younger workers if they do not receive enhanced redundancy payouts calculated on the same basis.”
