UK redundancy payments hit average of £500 million per month

By March 31 this year, UK employers will have paid out a total of £6 billion.

According to law firm Wedlake Bell, this is a 25% rise on the £4.5 billion paid out in redundancy settlements in the previous year (ending March 31 2009).
 
David Israel, head of employment at Wedlake Bell, said: "At a total of £10.5 billion for two years, the cost to UK employers of credit crunch related job cuts in redundancy payments alone is staggering."
 
With redundancy settlements averaging roughly £12,500 per individual over the past two years it shows the extent that businesses have gone to in order to bring down their cost base over the medium and long term.
 
Israel added: "Businesses have been willing to take a pretty big upfront hit in order to deliver longer-term savings. On average they have been paying far more than the minimum redundancy payments they have to pay by law."
 
The average redundancy payment in the past two years is worth more than 25 weeks of the median UK salary (£489). Statutory redundancy pay is capped at £380 per week and based on the employee's age and years of service.
 
According to Wedlake Bell, there are three main reasons for these high redundancy payments:

• Helps to maintain morale of existing staff and preserve the reputation of the employer for looking after their staff  
• The scale of redundancies means that employers are having to shed staff they would prefer to keep and who they think deserve a redundancy settlement in excess of the legal  minimum  
• To help prevent former employees from launching an unfair dismissal claim against the employer. Higher redundancy payments are often offered on the basis that the employee agrees not to pursue any legal claims against the employer

But the news comes as research from law firm Dolmans found the number of unfair dismissal claims have risen by a third over the last year, on account of the increasing number of redundancies.

Jennifer Dolan, employment law specialist at Dolmans, said: "The problem arises where firms are too quick to act and make culls of their staffing levels without taking the appropriate action first. It is understandable how this happens - when a company is in financial trouble it needs to act fast and do whatever it can to survive. However, there are strict legal processes for redundancy that have to take place and when they are not followed it has been costly for organisations."