Martin Brewer and Esther Smith advise on whether redundancy pay should include a 'set bonus' and 'travel allowance'.
The question: Should redundancy payment include bonus?
My friend works for a building company and has just been made redundant. He has been offered redundancy pay based on his basic weekly wage. For the past three years he has received a set weekly bonus and a travel allowance. Is there any provision for these amounts to be included in the calculation?
Martin Brewer, partner, Mills & Reeve
The answer to this is much more complex than it ought to be. The answer depends on what you mean by 'set weekly bonus' since that determines whether the employee is a variable rate worker or not and, depending on the answer to that the calculation of a week's pay differs. If the bonus is always the same figure then in simple terms it should form part of the calculation. If the bonus varies the calculation is more complex and if the figures warrant it specific advice should be sought.
Esther Smith, partner, Thomas Eggar
The first thing to say is that for the purposes of calculating statutory redundancy pay, there is a cap on the amount of a week’s wages which is currently £380. Therefore if your friend’s weekly wage is over and above £380 gross per week, the issue of whether or not his bonus and travel allowance should be included is fairly academic as it won’t affect the calculation.
If the redundancy is calculated by reference to a contractually enhanced scheme, then the employer can determine how a week’s pay is calculated, so long as it is in excess of the statutory minimum.
In the alternative if the weekly pay is below the capped level of £380, then you need to consider whether the weekly bonus and travel allowance should be included in the calculation. You do not say what the bonus is for and whether it is paid without condition etc.
However there have been some precedents where regular bonuses (eg. a regular shift bonus, a regular monthly departmental bonus) have all been regarded as pay and therefore should be included in the week’s pay for the purpose of calculating redundancy pay. Travel allowances would also be regarded in the same manner.
Esther Smith is a partner in Thomas Eggar's Employment Law Unit. For further information, please visit Thomas Eggar.