NHS redundancy arrangements

Staff who are made redundant should receive one month’s pay per year of reckonable service, with a maximum of 24 months’ pay (only full years of reckonable service can be counted when calculating redundancy pay as employment for part of a year should be disregarded).

A month’s pay, subject to a total annual earnings floor of £23,000 and cap of £80,000, will be either an amount equal to 1/12th of the annual salary at the date of termination or 4.35 times a week’s pay whichever is more beneficial to the employee (the average month has 4.35 weeks). The calculation of 4.35 times a week’s pay should be made in accordance with the Employment Rights Act 1996.

Redundancy entitlements are, in the main, determined by service criteria. In redundancy compensation, there are two concepts of service - continuous service which employers need to consider first and reckonable service which then determines the period(s) of service to be counted in paying redundancy.

Continuous service

Employees must first have sufficient continuity of service to be eligible for an NHS contractual redundancy payment:

• a minimum of two years NHS service with one or more NHS employer (See Annex A, NHS terms and conditions of service handbook) with a break of no more than one statutory week
• where an employee has had a break in NHS service of more than one statutory week, the prior service is not counted for the purposes of accruing the necessary minimum period of two years continuous service.

Reckonable service

Once an entitlement to redundancy has been determined, NHS reckonable service will then be used as the basis for determining the eligible service to be used in calculating the amount of the contractual redundancy payment.

All continuous NHS employment with one (or several) NHS employers counts as reckonable service for redundancy compensation, unless it has been taken into account in a previous redundancy – or loss of office payment (paragraph 16.6, Section 16 (England) of the NHS terms and conditions of service handbook) or Mutually Agreed Resignation Scheme (MARS) severance payment (paragraph 20.18 of the NHS terms and conditions of service handbook).

Providing the employee has not had a break in NHS service of over twelve months the period of NHS employment prior to any break counts as reckonable service and therefore previous service can be included when calculating contractual redundancy.

Exclusions - when reckonable service is not counted

Reckonable service is not counted when:

• service is counted previously in respect of a redundancy by an NHS employer
• any previous employment for which an employee has received NHS pension benefits
• loss of office payment
• MARS severance payment (which is offset against any subsequent redundancy payment).

Redundant employees who have reached the minimum pension age and are members of the NHS pension scheme can, if they wish, take their pension early.

The payment will be met from the lump sum redundancy payment that the employee would have received but in cases where the cost to the employer of paying the single payment is less than the value of the redundancy payment, the employee will also receive any balance due. However if the cost of early retirement is more than the redundancy payment due, the employee will have the one-off option to make up all or part of the difference out of their own personal funds.

More details about early retirement provisions and redundancy can be found in paragraphs 16.12 - 16.15 of Section 16 (England) of the NHS terms and conditions of service handbook.

Suitable alternative employment is a concept of the Employment Rights Act 1996 and an important part of a robust redundancy process. It is an employer’s responsibility to seek suitable alternative employment for staff before making redundancies. Paragraphs 16.21 -16.23 of Section 16 (England) of the NHS terms and conditions of service handbook provides information for employers on the issue.

In general terms, whether a job is 'suitable' will depend on a number of key factors including:

• how similar the work is to the employee’s current job
• the terms of the job being offered
• skills, abilities and circumstances in relation to the job
• the pay (including benefits), status, hours and location.

The question of suitable alternative employment should be determined on a case by case basis. See the findings of the Employment Appeal Tribunal - Readman v Devon Primary Care Trust.

ACAS has produced guidance on redundancy.

A factsheet on Premature Retirement has been produced by NHS Pensions.

1. What changes have been made to the NHS redundancy pay provisions (1 April 2015)?

Under the old provisions there was no limit on the salary used to calculate a redundancy payment. The changes will see the introduction of a salary cap of £80k and a floor of £23k for lower paid staff. For staff with total earnings of more than £80K, the figure used for calculating a redundancy payment will be £80K. For staff with total earnings of less than £23k the redundancy pay will be calculated using the £23k figure.

Changes have also been made that remove the employer ‘top-up’ provisions for those who are made redundant over the age of 50 and chose to retire early. Under the old provisions an employee could choose to use their redundancy payment to fund the actuarial shortfall in their pension of taking it early and the employer was liable for any shortfall. This employer liability has now been removed but an employee can still choose to use their own funds to cover any shortfall at the time of the redundancy.

2. What happens if the formal redundancy consultation starts before 31 March 2015?

For employees subject to formal redundancy consultation which commenced prior to 1 April 2015, the old redundancy provisions in force prior to 1 April 2015 will apply.

3. What happens if the formal redundancy consultation starts after 31 March 2015?

For employees subject to formal redundancy consultation which commences after 31 March 2015, the new redundancy provisions will apply.

5. How does continuous service and reckonable service interact?

An employee is required to have two years (104 weeks) of continuous service in order to qualify for an NHS redundancy payment. This is service where there has not been a break of more than one week (measured Sunday to Saturday). Once the employee has earned the two years continuous service, they then qualify for an NHS redundancy payment. Any service over these two years will then count towards reckonable service, as long as they have not had a break of more than 12 months.

6. Does employment outside of the NHS count towards reckonable service?

It is at the employers discretion as to whether periods of employment outside of the NHS are counted as reckonable service. We suggest that where employment is outside of the NHS, but relevant to NHS employment, it would be reasonable to include this in the NHS redundancy calculation. However, this should be agreed with the employee when they join the NHS and with any subsequent NHS employer.

7. What if an employee has several breaks in service but when the breaks are added together they are for less than 12 months?

Providing the employee satisfies the qualification/continuity of service criteria for redundancy, then the period(s) between the breaks count as reckonable service for redundancy purposes, although the period of the break itself will not count.

8. If an employee has over 2 years reckonable service but falls short of 3 years’ service, what period of reckonable will be used in the redundancy calculation?

The NHS terms and conditions of service state that fractions of a years’ reckonable service are not counted when calculating redundancy pay, so therefore if the employee had 2 years and an amount of days below a further complete year, then they would not be entitled to have that third year of reckonable service counted as it would only be a part year.

9. Are bank staff eligible for NHS redundancy?

The NHS terms and conditions of service handbook does not cover contractual redundancy arrangements for bank staff so entitlement to redundancy will be a matter for individual employers and will largely depend on the detail in the local contract of employment of the individual concerned.

10. What about employees on fixed term contracts?

If the reason for termination of the fixed term contract is redundancy and they have 2 years continuous service, then the employee should be treated in the same way as an employee on a permanent contract.

11. What about service in a GP practice? Could this count for NHS redundancy?

Service with a GP practice does not automatically count for an NHS redundancy payment as it is not NHS service which has to be with an NHS employer (see Annex A of the NHS terms and conditions of service handbook). However, employers do have the discretion to recognise service outside the NHS. Section 16.5 (third bullet) states that employers do have the discretion to take into account “any period of employment with employers outside the NHS where these are judged relevant to NHS employment”.

12. What is included in a month’s pay?

As set out in Section 16 (England): 16.7 of the NHS terms and conditions of service handbook, a month’s pay is defined as whichever is more beneficial from the 2 calculation as follows:

• 4.35 times a week’s pay, calculated in accordance with the provisions of Section 221 to 224 of the Employment Rights Act 1996
• an amount equal to 1/12th of the annual salary in payment at the date of termination of employment.

Payment should be calculated on the basis of the employee’s "normal working hours" so would include unsocial hours but would not normally include overtime unless the employee is entitled to it under their contract of employment i.e. if the employer must provide overtime and the employee must work it. This would include any contractual payments for that period.

13. How will a redundancy payment be calculated for staff earning less than £23,000 per year?

The redundancy payment will be calculated as if the earnings were £23,000, subject to the minimum two-year qualifying period and a maximum of 24 years of reckonable service.

14. How will a redundancy payment be calculated for staff earning more than £80,000 per year?

The redundancy payment will be calculated as if the earnings were £80,000, subject to the minimum two-year qualifying period and a maximum of 24 years of reckonable service.

15. How will a redundancy payment be calculated for staff earning more than £23,000 per year but less than £80,000 per year?

The calculation of the redundancy payment will remain unchanged.

16. An employee is working part time 18.75 hours per week (0.5 FTE) and earns £50,000 pa. They have more than 24 years’ continuous service. What would their redundancy payment be?

The full time equivalent (FTE) earnings is £100,000 and therefore for the purposes of the calculation the cap of £80,000 will be used:

(Annual Earnings/12 months x Number of years’ reckonable service) x Full time equivalent = Redundancy payment.

(£80,000/12 x 24 years’ reckonable service) x 0.5 FTE = £80,000.

17. Is the redundancy lump sum tax free?

The first £30,000 is tax free. Anything above this is taxable.

18. Is there a redundancy calculator for employers?

Employers can calculate redundancy payments on Pensions Online (POL), via the NHS Pensions website. POL was upgraded to process estimates of redundancy benefits.

19. How do employers calculate capitalised costs?

Employers are able to run the redundancy quotes through the Pensions On-line (POL) programme that can be accessed via NHS Pensions. This will produce the member's pension and lump sum figures, which are required to calculate the capitalised cost, however pensions on-line will calculate all three.

Scenario 1 - Concurrent part time roles

An employee has two concurrent posts with the same employer (or two different employers):
1. Post A is a 0.5 wte (whole time equivalent 37.5 hours per week) band 7 role and the individual has been in the post for 10 years.

2. Post B is 0.5 wte band 8a role and the individual has been in this post for 1 year.

The employee has over 24 year’s continuous unbroken service with the NHS.

20. If the individual was made redundant from the first post what would their entitlement be?

24 years’ service x 0.5 wte month’s pay for Post A.

21. The second concurrent post is then subsequently made redundant two years later. What would the employee’s redundancy entitlement be?

24 years’ service x 0.5 wte month’s pay for Post B.

22. A year after the first redundancy the employee increases their wte hours to 1 wte (37.5 hours). A year after this, they are then subsequently made redundant. What would the employee’s redundancy entitlement be?

Post A resulted in 24 years’ service x 0.5 wte month’s pay. Therefore for Post B the payment would be 23 years’ service x 0.5 wte month’s pay + 1 year years’ service x 1.0 wte month’s pay.

Scenario 2 - Sequential concurrent roles

An employee with 30 years unbroken NHS service has a series of concurrent NHS posts with the same employer (or different employers):

1. Post A is a 0.5 wte (whole time equivalent 37.5 hours per week) band 7 role and the individual has been in the post for 10 years at the time of being made redundant.

2. Post B is 0.5 wte band 8a role and the individual has been in this post for 1 year prior to Post A being made redundant and 2 years after before Post B is made redundant.

3. Post C is 0.6 wte Band 7 role which the individual starts shortly after Post A is made redundant and holds this post for 5 and half years before Post C is made redundant.

23. What would the employee’s entitlement to redundancy be for Post C?

Whilst Post B and Post C are concurrent, Post C was never concurrent with Post A and therefore the reckonable service for the purpose of Post C would start from the date it was concurrent with Post B and include any unused eligible aggregated reckonable service. The redundancy payment for Post C would be:

11 years’ service (6 years eligible unused aggregated service + 5 years’ service since Post A being made redundant) x 0.6 wte month’s pay.

Scenario 3 - Concurrent part time roles greater than 1.0 wte

An employee has two concurrent posts with the same employer (or two different employers):

1. Post A is 1 wte (37.5 hours per week) Band 7 role

2. Post B is 0.27 wte (10 hours per week) Band 2 role

The employee has over 17 year’s continuous unbroken service with the NHS.

24. If the individual was made redundant from the first post what would their entitlement be?

17 years’ service x 1 wte month’s pay.

25. The second concurrent post is then subsequently made redundant two years later. What would the employee’s redundancy entitlement be?

19 years’ service x 0.27 wte month’s pay.

Scenario 4 - Non concurrent part time roles

26. A part time employee is employed on a 0.6 wte basis and has 24 years’ service. They are made redundant and are paid 24 years’ service x 0.6 wte month’s pay. Three months later they a re-employed in the NHS on a 0.8 wte basis. 5 years later they are made redundant again. What would their redundancy entitlement be in the second role?

5 years’ service x 0.8 wte month’s pay.

27. How is suitable alternative employment defined?

Section 141 of the Employment Rights Act 1996 governs the rules on suitable alternative offers of employment in relation to redundancies. The legal framework establishes the duty on employers to take reasonable steps to find, where possible, suitable alternative employment for affected staff. Whether a job is 'suitable alternative employment' depends on several things including:

• how close the work is to current job
• the terms of the job being offered
• skills, abilities and circumstances in relation to the job
• pay (including benefits), status, hours and location of the job.

The question of suitable alternative employment should be determined on a case-by-case basis. See the findings of the Employment Appeal Tribunal - Readman v Devon Primary Care Trust.

28. How long should employees wait before they can obtain another post within the NHS?

Section 16 (England): 16.20 of the NHS terms and conditions of service handbook states that employees are not entitled to a redundancy payment if, at the date of the termination of their contract, they have obtained without a break or with a break not exceeding four weeks, suitable alternative employment in the NHS. We therefore advise that if employees obtain suitable alternative employment within four weeks of the termination of their contract, they would not be entitled to their redundancy payment.

Suitable alternative employment is a concept in the Employment Rights Act 1996 and invariably there is a degree of interpretation involved. Suitable alternative employment would normally include duties of the post, salary, earnings protection, location of post, qualifications, and aptitude and need for training.

If the employee is made redundant again in the future, they would only be entitled to NHS redundancy for the period post re-employment, as described in Section 16 (England): 16.6 of the NHS Terms and Conditions of Service Handbook.

29. What about a pregnant employee on maternity leave? Can they be made redundant?

A pregnant employee or one on maternity leave can initially be treated the same as other employees in the pool for selection for redundancy. However, an employee must not be selected for redundancy for a reason connected to her pregnancy, the birth of her child or maternity leave. If you do not establish a fair reason for the employee’s dismissal, you may face an unfair dismissal and sex discrimination claim, irrespective of the employee’s length of service. However, if employees on maternity leave are selected, special provisions concerning offering alternative employment apply to protect them.

30. What are special provisions?

An employee on maternity leave is entitled to priority over those not on maternity leave as far as suitable alternative employment is concerned. If a vacancy exists, she must be offered the alternative employment under a new contract immediately following the day on which her previous contract comes to an end. The new work must be suitable and appropriate for her to do and must not be substantially less favourable than that of her previous contract. Where a suitable vacancy exists and the employer fails to offer it, an employee’s dismissal will be deemed automatically unfair.

31. What is the position for staff who are made redundant but who are over the minimum pension age?

Employees who have reached minimum pension age and have two years' membership to the NHS pension scheme can opt to take their pension early. In effect, the employee buys out the reduction with their redundancy payment. If the redundancy payment is not sufficient to buy-out the full reduction then the employee can choose to make an additional payment at the time of the redundancy to make up the full or partial difference. (Section 16 (England): 16.14).

32. What about employees who have retired, returned to work in the NHS and subsequently made redundant? Does their previous NHS service count for redundancy?

Section 16.6 of the NHS terms and conditions of service handbook states that reckonable service does not count for employment where the member has taken pension benefits.

16.6 The following employment will not count as reckonable service:

• employment that has been taken into account for the purposes of a previous redundancy, or loss of office payment by an NHS employer
• where the employee has previously been given pension benefits, any employment that has been taken into account for the purposes of those pension benefits.

However, if the employee has a break of less than one week after they have retired, they would be entitled to statutory redundancy. In order to prevent this situation arising, employers may require a break of 14 days between retirement and re-engagement to ensure that there has been a ‘statutory’ break in service.

33. How should career breaks be treated in a redundancy situation?

We believe that if the post of an employee on a career break becomes at risk of being declared redundant, the employee should be afforded all the rights they would have, where they attending work. Being on a career break will not, however, afford any special protection against redundancy; neither will it be used as a reason for identifying the post as redundant.

The NHS terms and conditions of service handbook is not explicit on the issue of pay to be used to calculate redundancy whilst on a career break and you may wish to seek your own legal advice on the matter before proceeding. However, as there is a requirement to return the employee to full pay during a notice period prior to a contract of employment coming to an end we would assume that using zero pay is not appropriate when calculating a redundancy entitlement.

Section 34 of the NHS terms and conditions handbook contains information relating to the employment break scheme. With regards to suspending redundancy provisions as outlined in section 34, you should count service before the break but not the break itself.

34. If an employee had taken advantage of the salary sacrifice arrangements but is later made redundant, how would you calculate their redundancy payment?

This is not covered in the NHS terms and conditions of service handbook. Salary sacrifice is covered by employment and contract law and describes a legally binding change in the contractual arrangements between an employer and an employee - whereby an employee gives up the right to receive part of their cash salary, under their contract of employment, usually in return for some form of non-cash benefit. As salary sacrifice is about varying the employee’s terms and conditions, it is a matter for agreement between the employer and the employee concerned and you may wish to seek legal advice on the implications of a salary sacrifice scheme before proceeding.

In implementing salary sacrifice arrangements we are aware that employers adopt different contractual approaches in relation to the terms of their local schemes. In a redundancy situation, providing employees have been made fully aware of the implications on their terms and conditions of service, it would be appropriate to calculate redundancy pay on the reduced salary, after taking away the salary sacrifice element, where the individual had not opted to end their salary sacrifice arrangement prior to the end of their employment contract. Further guidance on salary sacrifice is also available from HM Revenue and Customs (HMRC).

35. Is an employee entitled to a redundancy payment if they have previously been made redundant?

Yes, but they must start again to build up their service before they would qualify again for redundancy. So in effect the clock starts again on return to work. Therefore, if the employee meets all qualifying criteria, they would be entitled to a redundancy payment for their service in the new post but remember that service can only be counted once for the purpose of redundancy.