As companies employ individuals on fixed-term contracts, there comes a time when the contract inevitably comes to an end. In most cases, employers offer redundancy payments to compensate for the abrupt end to an employee`s contract. This article will discuss redundancy payment at the end of a fixed-term contract, what it is, who is eligible, and how to calculate it.
What is redundancy payment at the end of a fixed-term contract?
Redundancy payment at the end of a fixed-term contract is a statutory payment that employers provide to employees at the end of their fixed-term contract. This payment is intended to compensate employees for the loss of their job and to help them transition to a new job. Redundancy payment at the end of a fixed-term contract is only applicable to employees who were employed for two or more years.
Who is eligible for redundancy payment at the end of a fixed-term contract?
Employees who have been employed on fixed-term contracts for two or more years are eligible for redundancy payment. However, there are a few exceptions to this rule. For instance, employees who have been dismissed for misconduct may not be eligible for a redundancy payment at the end of their fixed-term contract.
How to calculate redundancy payment at the end of a fixed-term contract?
Calculating redundancy payment at the end of a fixed-term contract is relatively straightforward. The amount of redundancy payment an employee receives is based on their length of service and their gross weekly pay. To calculate the amount of redundancy payment, the following formula is used:
Figure out the weekly gross pay of the employee who is about to get the redundancy payment. You can find this information on their payslip.
Take their weekly pay and then divide that number by seven days per week.
Work out how many years and weeks they were employed in total.
Then, multiply the weekly payment by the number of weeks employed (up to a maximum of 20 years) and the number of weeks’ pay cap.
For example, if an employee worked for four years and their gross weekly pay was $500, their redundancy payment would be calculated as follows:
$500 (weekly pay) ÷ 7 (days in a week) = $71.43 (daily rate)
4 years = 208 weeks
208 weeks x $71.43 = $14,857.44
The maximum number of weeks counted for redundancy payment is 20, meaning that an employee’s payment would be capped at $14,286. Any employee who is employed for more than 20 years is still only entitled to 20 weeks’ pay.
Redundancy payment at the end of a fixed-term contract provides a helpful safety net for employees who are now facing job loss. Employers are required to provide this payment to eligible employees, and calculating the payment is relatively simple. Overall, redundancy payment at the end of a fixed-term contract allows employees to transition into new employment opportunities with a compensation package that helps them get back on their feet.