With the current rate of inflation being so high, it is perhaps of little surprise that the Government has announced a significant hike in the cap on various statutory payments which apply in employment cases.
One the most significant differences employers will face will be the potential cost of making employees redundant and in the value of claims being brought to an employment tribunal for unfair dismissal. This is because the upper cap on a week’s pay for statutory redundancy payments will increase on 6th April 2023 from £571 to £643. The same will apply to the cap on a week’s pay for calculating the basic award for unfair dismissal.
This in turn means that the maximum amount an employee can receive for a statutory redundancy payment or as a basic award for unfair dismissal will increase from £17,130 to 19,290.
There is also an increase of well over 10% on the maximum compensatory award for unfair dismissal, which goes up from £93,878 to £105,707 from 6th April 2023.
Employers must recalculate
It is therefore important for employers to bear this in mind if they are making plans to make redundancies in the near future. If they have calculated the cost of the redundancies on the older capped rate of £571 but the redundancies will take effect from 6th April 2023 or later, then the new rate of £643 should be applied to the upper cap on a week’s pay.
Although this will not make a difference for employees who are paid less than £571 per week before tax, there is an increasing number of employees who now fall into the category of earning over £571 a week due to the inflationary effects on pay, which can also be seen by the dramatic increases this year in the national minimum wage rates.
Defending risk will increase
Employers need to be aware that the degree of risk in defending claims in an employment tribunal is therefore likely to increase, as the potential pay-out to an employee will be greater. This will also mean that when employers offer their employees settlement agreements, they may have to offer more than they would have done in the past to make the offer sufficiently attractive for the employee.
Although the increase has generally applied year-on-year for many years, it is a long time since the rates were increased by such a significant margin as will apply from 6th April 2023. This can be attributed to the much higher rate of inflation this year as compared to recent years.
It is all the more important that employers follow the correct procedures and take expert advice at the outset, so as to minimise the risk of having to pay out even larger sums at tribunal or in settlements than have applied in the past.