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What Is Voluntary Redundancy Pay?

Written by, Marija Petkova

Updated April, 17, 2022

If you’re considering voluntary redundancy, you may be wondering how much you’ll be paid. 

But, what is voluntary redundancy pay, and what are the advantages and risks?

Keep reading to find out everything you need to know about voluntary redundancy in the UK.

What is Voluntary Redundancy Pay?

Voluntary redundancy pay is an employer’s payment to an employee who voluntarily leaves their job. These payments are usually a scaled-up version of the statutory payment that the employee would be entitled to if they were made redundant. 

Taking voluntary redundancy can be a good way for employees to leave their jobs on their own terms.

In most cases, to be eligible for voluntary redundancy pay, the employee must have been working with the business for at least two years at the time when the employee is asking for voluntary redundancy. 

Depending on the employee agreement, some employees may get redundancy pay irrespective of their length of service or the size of the business where they are employed.

The Difference Between Voluntary and Compulsory Redundancy

Both voluntary and compulsory redundancies end with an employee’s contract being terminated. 

Compulsory redundancy occurs when an employer decides on downsizing and reducing staffing by selecting employees who they believe should leave. The employer has to be fair and can pick employees for redundancy based on qualifications, skills, performance, attendance, and disciplinary records.

The employees can negotiate with their employers and receive compensation for lost wages or other tangible losses. You also might be eligible to get Universal Credit and have it backtracked.

Voluntary redundancy is when employers ask employees to agree to terminate their contract in exchange for an incentive. 

In most cases, employees are asked to apply for voluntary redundancy, but applying for voluntary redundancy doesn’t mean they will automatically get it.

What Are The Advantages Of Voluntary Redundancy?

There are many good reasons for voluntary redundancy. 

A large sum of money

Companies can pay a big redundancy payout to make voluntary redundancy worthwhile. You can use the money to take some time off and look for another job or cover the costs of having to move to another city/country.

You get to choose

With voluntary redundancy, it is up to you to choose if you want to take the payout and you can (to a certain extent) negotiate your own terms. For example, employees who apply for voluntary redundancy can ask the employer not to work during their notice period.

A welcome change in direction

Voluntary redundancy and its benefits can be used in a variety of ways. For example, you might want early retirement, become self-employed or change careers. If you’re nearing retirement, you can also cancel your pension and withdraw some money from your pension pot.

What Are The Risks Of Voluntary Redundancy?

Before you send an application to your employers, it’s crucial to weigh the pros and cons of taking voluntary redundancy. 

You may negotiate a low sum of money

You may realise later that you negotiated for a low sum of money. That’s why it’s always important to do your research, ask about your choices, and contact a financial advisor if necessary. 

It might take a long time to jump into a new career

If you apply for a voluntary redundancy with the goal of finding a new career, you might want to consider all the trouble you’ll have to go through to get there. What’s more, you can’t know how long it would take for you to get a stable job in your targeted field and if you can afford to look for it for a long period.

Financial troubles 

Taking voluntary redundancy is not always a smart choice for employees who have families that depend on them. You’ll have to make sure that you can support yourself and your family until you find a new job. If you get a good payout, you can look into how to start investing in property.

What is the payout?

The amount of the voluntary redundancy payout depends on a variety of factors, including pay grade, age, and length of employment. They are usually higher than statutory payments, which follow these general guidelines: 

  • Under 22 years old: Employees get half a week’s pay for each year worked.
  • 22 – 41 years old: Employees get one week’s pay for each year worked.
  • 42 years and older: Employees get one and a half week’s pay for each year worked.

Bottom Line

Voluntary redundancy pay can be a great deal for employees who have been thinking about leaving their jobs and/or want a career change. But, what is voluntary redundancy pay? It’s a certain amount of money that employees get to leave their jobs voluntarily. The voluntary redundancy pay is often big and much larger than what you would get with statutory redundancy.