EIM13990 - Termination payments and benefits: example: redundancy payments: Statement of Practice 1/1994: conditional payments
EIM13785 explained the need to identify payments that are for something other than compensation for redundancy. The question often arises where payments are conditional on staying to a specified date. These may be within Section 62 ITEPA 2003 (see EIM00515) rather than Section 401 ITEPA 2003.
Example 1
Company A is shutting a factory and making all the employees redundant. The redundancy scheme provides for:
- statutory redundancy payments in accordance with the Employment Rights Act 1996 (see EIM13760) plus
- non-statutory redundancy payments based on length of service and final salary (see EIM13775) plus
- a payment of £500 to each employee who stays to the redundancy date.
The payment of £500 is for continuing to serve as an employee and therefore falls within Section 62 ITEPA 2003. It is not compensating for the redundancy itself.
Example 2
The facts are as in example 1 except:
- there is no £500 payment offered and
- the non-statutory redundancy payment is made conditional on the employee staying to the redundancy date.
In this case, the non-statutory redundancy payment does not change its character simply because the employee is required to meet a specific condition before it is paid. It is therefore within Section 401 ITEPA 2003.