Retirement and redundancy pitfalls 

These pitfalls are also outlined in the briefing Retirement and redundancy: the right approach.

Concepts of 'service'

For redundancy compensation purposes there are two concepts of 'service' - 'qualifying service' which employers need to consider first, and 'reckonable service', which then determines compensation payments

Step one - qualifying service: continuous employment
An employee must first have sufficient ‘qualifying service’ to be eligible for redundancy compensation.

• Two years or more continuously employed service with one (or several) NHS employers is required to qualify for redundancy compensation.
• Where an employee has had a break in NHS service of more than one ‘statutory’ week, the prior service is not counted as continuous for qualifying service. For these purposes continuity is broken where the break exceeds one week which is a complete week ending with a Saturday.

Step two - reckonable service
Having qualified, the calculation of the compensation payment is then based on ‘reckonable service’.

• 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.
• Where an employee has had a break in NHS service of twelve months or less the period of NHS employment prior to the break counts as reckonable service but it does not count as qualifying service. (Agenda for Change NHS Terms and Conditions Handbook section 16.3)

Employment that counts as 'continuous' for redundancy

An individual's personal service history can be unique and it is wise to check the documentation held in personal records.  We have illustrated some of the different scenarios below:

• Pitfalls to avoid when re-engaging retired NHS staff
• Continuous non-NHS employment under TUPE including an example of continuous non-NHS employment under TUPE
• Non-NHS employment by contractual agreement including an example of continuous non-NHS service by contractual agreement
• Previous NHS employment that counts as continuous for redundancy - including an example of whether an individual qualifies for NHS redundancy compensation and if they do, how it will be calculated
• NHS Pension Scheme members aged over 50: qualifying service
• Breaks in service and suitable alternative employment
• Breaks in employment and statutory redundancy

Pitfalls to avoid when re-engaging retired NHS staff

NHS employees who have taken early retirement in circumstances other than redundancy, ie:

• Voluntary early retirement
• Normal age retirement
• Interests of efficiency retirement 

are often re-engaged into the NHS, sometimes into a different role and/or on a part time basis. The Pension Scheme rules require there to be a break of just 24 hours.  NHS employees who are re-engaged on this basis will have continuous NHS service. Should these employees become redundant at some point in the future, NHS redundancy compensation would apply only to the period post re-engagement, but all their continuous service would count for statutory redundancy compensation, notwithstanding that they are in receipt of a pension for the same period.

To avoid this situation arising, it is advisable to require a break of 14 days between retirement and re-engagement to ensure that there has been a ‘statutory’ break in service.

Continuous non-NHS employment under TUPE

Sometimes employees transfer from non-NHS employment into the NHS under TUPE (Transfer of Undertakings (Protection of Employment) Regulations), bringing with them statutory continuous employment rights from the date they started work with their previous employer (see example 1 below). In such cases, the transferred-in date is often mistakenly recorded as the date NHS employment began and the actual date of continuous service can easily be overlooked.

Continuous employment under TUPE counts for all statutory employment rights. It is both ‘qualifying’ and ‘reckonable’ service for NHS redundancy compensation.

Example: continuous non-NHS employment under TUPE
Margaret was a laboratory technician at a university where she had been employed since 1982. In 1997, while she was working on clinical research in partnership with an NHS hospital, the funding arrangements changed and the unit in which Margaret worked became a part of the NHS. Her employment transferred to the NHS under TUPE and all her contractual rights transferred with her, including continuous employment dating back to 1982.

In other words the contract of employment has exactly the same effect after the transfer as it did before the transfer.

Non-NHS employment by contractual agreement

NHS employers have discretion to allow relevant non-NHS employment for continuity purposes (Agenda for Change NHS Terms and Conditions Handbook section 12.2). Such an agreement would normally be made on appointment, be recorded in the documentation issued at the time and specify the contractual rights to which the earlier date applies (see example 2 below).

Non-NHS employment under an agreement like this would be counted as ‘reckonable service’ for NHS redundancy compensation.  It cannot be counted as qualifying service for NHS redundancy compensation nor for statutory employment rights (in example 2, David's 22 years with the civil service have been counted for NHS redundancy compensation. The statutory redundancy scheme would only take into account service with his current employer, i.e. two complete years).

Example: Continuous non-NHS service by contractual agreement
David was a civil servant with 20 years' service employed by the Department of Health (DH) when in 2002 he was seconded to an NHS Trust to work on a two year building project.  Whilst seconded to the NHS he continued to be an employee of the DH on DH terms and conditions. Towards the end of his secondment, David applied for and was appointed into a permanent job at the NHS Trust.

David entered NHS employment in December 2004 aged 43 and the Trust agreed to count his 22 years DH service as reckonable for redundancy purposes. David’s job is now at risk and he may be made redundant in March 2007 when he will be 46. By then his employment with the Trust will be two years, three months, which qualifies him for NHS redundancy compensation as he will have more than two years' continuous NHS employment.  His agreement with the Trust means that his reckonable service for NHS redundancy compensation will count his 22 years with the DH for the calculation of his redundancy compensation.

This is a local agreement, which is recorded in David’s contract of employment and held in his personal file, it cannot change his continuous employment for statutory purposes.

Previous NHS employment that counts as continuous for redundancy

In general law, continuous employment begins afresh with each change of employer whether or not there is a gap, except where this is amended by TUPE as described above, or where employers are ‘associated’ (section 231, Employment Rights Act 1996). NHS organisations are not ‘associated’ employers but special statutory provisions for the NHS have the effect of treating them as associated employers for the purposes of redundancy payments.  Therefore to qualify for redundancy compensation an employee is required to have two years' continuously-employed service with the same employer (part XI Employment Rights Act 1996) or with several NHS employers (Redundancy Payments (National Health Service) (Modification) Order 1993). Service with a succession of different NHS employers can be counted as continuous employment for redundancy, provided that service has not been interrupted by a break of more than one week as defined by statute. For these purposes continuity is not broken unless the break exceeds one week which is a complete week ending with a Saturday (see example 3 below).

Continuous NHS service under these special provisions does not give NHS employees continuous employment for statutory employment rights other than a statutory redundancy payment. For example, such continuous service would not count towards the qualifying period for claiming unfair dismissal.

Example: Does Nuala qualify for NHS redundancy compensation and if so how will it be calculated?
Nuala joined the NHS in Northern Ireland in July 1987. In this phase of her career, she worked for three NHS Trusts, 'A', 'B' and 'C'. on each occasion, she commenced with her new NHS employer in the week following her departure from the previous one.

In June 2000, Nuala's family moved to England and she left Northern Ireland with 13 years' NHS service.

Nuala's first healthcare job in England was outside the NHS, she worked in the private sector for 10 months before rejoining the NHS for Trust 'D' in May 2001.

Nuala then took an opportunity for promotion to NHS Trust 'E'. Her last day at work with Trust 'D' was Friday 12 November 2004, but as she had six days annual leave owing, her actual employment with Trust 'D' ended on Monday 22 November. Her appointment at Trust 'E' began on 1 December 2004.

In 2006, reorganisation means that Nuala's job with Trust 'E' is to move to a new geographical location to which she is unable to travel, and on 15 September she is served notice of redundancy.

Step one qualifying service: continuous employment

When she is made redundant on 16 October 2006, Nuala has been employed by NHS Trust 'E' for less than two years but she has sufficient qualifying service for NHS redundancy compensation. Her service with NHS Trust 'D' counts as continuous unbroken service because the gap does not include a 'complete' week.

Step two reckonable service

When calculating Nuala's entitlement to redundancy compensation, she has five years and five months' service with the NHS in England. Her Northern Ireland NHS service also counts because her time outside the NHS was less than 12 months. Nuala's 18 years in the NHS gives her 18 months' pay as redundancy compensation.

NHS Pension Scheme members aged over 50: qualifying service

NHS Pension Scheme members who have reached the minimum pension age (normally 50) can choose to take their pension early without reduction in the value of pension benefits as an alternative to receiving the lump sum redundancy compensation payment. 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 protection, members who first joined and some who returned to the scheme after 6 April 2006, and those who opt to move to the new pension scheme, minimum pension age will change from 50 to 55 from 6 April 2010.

To qualify for retirement the member of staff must have:

• Two years' 'qualifying' service as described in step one (above)
• Two years' 'pensionable' service

'Pensionable' service is the length of service a pension scheme member has credited to them in the pension scheme. ‘Pensionable’ service may be different from ‘qualifying’ and ‘reckonable’ service as it can include NHS Pension Scheme membership accrued at any point in time; service with another employer; and part time service is compressed.

Breaks in service and suitable alternative employment

An employee will not be entitled to redundancy compensation if offered suitable alternative employment with any NHS employer which s/he unreasonably fails to accept.  This includes a new contract which is offered prior to the end of the old contract and starts within four weeks from the end date of the old contract.

Breaks in employment and statutory redundancy

NHS employees who have been made redundant, received NHS redundancy compensation and have then been re-engaged in the NHS cannot have that service counted a second time (Agenda for Change terms and Conditions Handbook section 16.5).

The same applies in respect of the statutory redundancy payment. Where an employee has been paid a statutory redundancy payment and is then re-engaged by the same or another NHS employer, the service up to the date of the redundancy is not continuous (section 214 Employment Rights Act 1996). The employee can choose to repay the redundancy payment and have the service counted as continuous, or keep the redundancy payment and have no continuity of service with the previous employment (Employment Protection (Continuity of Employment) Regulations 1996).

See also pitfalls to avoid when re-engaging retired NHS staff below.