In the unfortunate situation where a doctor is made redundant from their post there are essentially two types of redundancy payment which may be made. It is important at the outset to differentiate between the two types of payment as the criteria for payment and the level of payment differ.
The two types of payment are:
- Statutory Redundancy
- Contractual Redundancy
Statutory redundancy payment
A doctor will be entitled to a statutory redundancy payment if he or she has been continuously employed for a period of not less than two years. This would normally be employment with the same or an associated employer. The dismissal by the employer must be by reason of redundancy.
The calculation of a statutory redundancy pay is based on:
- How long you have been continuously employed
- Your age
- Your weekly pay, up to a limit of £400 per week (from 1 February 2011)
If a doctor satisfies the criteria for a statutory redundancy payment then they will receive the following:
- 0.5 week’s pay for each full year of service where their age was under 22
- 1 week’s pay for each full year of service where their age was 22 or above, but under 41
- 1.5 week’s pay for each full year of service where their age was 41 or above.
You can find an online redundancy calculator at www.direct.gov.uk
Doctors should be aware that if they do not have two years’ continuous employment with their current employer or Trust then they may not be entitled to a statutory redundancy payment. The rules for continuous employment are different to most NHS contractual schemes.
Contractual redundancy payment
Most doctors who are made redundant within the NHS will also have access to a contractual redundancy payment. However it is important to take advice on which redundancy scheme applies to your situation. In general contractual redundancy schemes are far more beneficial than the statutory schemes.
In December 2006 a new redundancy scheme was introduced for most NHS employees. An example of this can be found in Schedule 26 of the new consultant contract (insert NHS employers link).
The key features of eligibility for the scheme are:
- The employee must have 104 weeks of continuous full time or part time service with the present or any previous NHS employer. If the employment is with more than one NHS employer there must not have been more than a week (measured Sunday to Saturday) between employments.
- The dismissal must arise by reason as redundancy as set out in Section 139 in the Employment Rights Act 1996.
However members should be aware that there are a number of very important exclusions to the contractual scheme. Employees are not entitled to redundancy payments or early retirements on grounds of redundancy under this scheme if:
- They are dismissed for reasons of misconduct, with or without notice or
- At the date of the termination of the contract have obtained without a break, or with a break not exceeding four weeks, suitable alternative employment with the same or other NHS employer or
- Unreasonably refused to accept an offer of suitable alternative employment with the same or another NHS employer or
- Leave their employment before expiry of notice, except if they are being released early or
- Offered a renewal of contract (with a substitution of a new employer for the previous NHS one) or
- Where the employment is transferred to another public service employer who is not an NHS employer.
Calculation of redundancy payment
The redundancy payment will take the form of a lump sum depending on the employee’s "reckonable service" at the date of termination of employment. “Reckonable service” is calculated on the basis of the service up to the date of termination of the contract and means continuous full time or part time employment with the present or any previous NHS employer with the following additions:
- Where there has been a break in service of twelve months or less the period of employment prior to the break will count as reckonable service
- Periods of employment as a trainee with a general medical practitioner in accordance with the provisions of the trainee practitioner scheme will count as reckonable service
- At the employer’s discretion, any period or periods of employment with employers outside the NHS where these are judged to be relevant to NHS employment can be included in reckonable service. However it should be noted that employment that has been taken into account for the purposes of a previous redundancy or loss of office payment by an NHS employer, or where the employee has previously been given pension benefits, any employment that has been taken into account for these purposes will not count as reckonable service.
The redundancy lump sum payment will be calculated on the basis of one month’s pay for each complete year of reckonable service subject to a minimum of two years (104 weeks) and a maximum of 24 years’ reckonable service being counted. Fractions of a year’s reckonable service will not be taken into account.
Early retirement on grounds of redundancy for employees entitled to pension benefits
It may be possible in some circumstances for members of the NHS Pension Scheme who are made redundant to choose to retire early without reduction in the value of their pension benefits in alternative to receiving the full lump sum benefit set out above.
To qualify for early retirement the member of staff must:
- Be a member of the NHS Pension Scheme
- Have at least two years’ continuous service and two years’ qualifying membership
- Have reached the minimum pension age
The Finance Act 2004 allows for protection of a minimum pension age of 50 for members who had the right to take reduced benefits at that age on 5 April 2006. This protection may continue as long as members retiring early after 6 April 2010 take all their benefits payable under scheme rules. In the NHS scheme for those without this protection, members who joined and some who returned to the scheme after 6 April 2006, minimum pension age will change from 50 to 55 from 6 April 2010.
If the doctor chooses to take early retirement with an unreduced pension under these arrangements they will receive immediately the full value of their qualifying pension benefits at the point of redundancy without actuarial reduction that would occur with voluntary early retirement.
Their employer will pay the relevant NHS pension scheme a sum equivalent to the capitalized cost of paying the pension and lump sum early. If the cost of the employer of paying by single payment for early retirement is less than the value of the redundancy payment that the doctor would have received as a lump sum then a redundant employee will also receive from the employer a redundancy payment equivalent to the difference between the two sums.
However, if the cost of early retirement is more than the redundancy lump sum payment the employer will be liable to pay the additional costs.
An employee who is re-employed having been made redundant can keep his or her statutory redundancy payment whether or not he or she is immediately re-employed or returns to work for the same employer at a later date.
However, Section 214 of the Employment Rights Act 1996 means that the receipt of the statutory redundancy payment will break the employee’s continuity of employment for the purposes of a future statutory redundancy payment under the scheme. Therefore if an employee is made redundant again in the future, he or she will not be entitled to a statutory redundancy payment until he or she has accrued another two years’ service.
Other contractual schemes
It is important to note that Universities, private employers and possibly some GP practices will have their own contractual scheme. Doctors should call the BMA on 0300 123 1233 for further information and advice on their contractual entitlements.
Medical academics employed at universities can refer to the guidance on medical academic redundancies.
Taxation of lump sum payments
If a redundancy payment is paid, the first £30,000 of this amount is tax free.
Under the NHS pension scheme, a lump sum is payable which is normally three times pension. This lump sum is tax free, except where there is an enhancement element resulting from early retirement (section Enhancement of lump sum refers - go there now). This enhanced portion of the lump sum is tax free only within the £30,000 limit mentioned above.
If, in addition to a redundancy payment, a further amount is paid by way of an ex-gratia payment, this is tax free, but only within the £30,000 limit.
Pay in lieu of notice is taxable in full unless it is paid as a result of breaching a requirement to give notice in which case it is tax free within the £30,000 limit (other payments may fall within the £30,000 limit if they are shown to be damages for breach of contract).
The information given should be taken as general guidance only and is not intended to cover every situation. The taxation of termination payments is a complex area.