How redundancy pay is calculated in the UK
Statutory redundancy pay follows a fixed formula. There's no discretion in it. Your employer can't decide to give you less than the statutory amount if you qualify. This guide walks through the formula, gives you worked examples at different ages and service lengths, and covers the tax implications you need to know about.
The statutory formula
You get a set number of weeks' pay for each complete year of service, based on your age during that year:
- Under 22: half a week's pay per year
- 22 to 40: one week's pay per year
- 41 and over: one and a half weeks' pay per year
Two caps apply. Your weekly pay is capped at £751 (for dismissals from April 2026). And only the last 20 years of service count, even if you've been there longer. The combination of these caps means the absolute maximum statutory redundancy is £22,530.
Your weekly pay is your gross pay before tax. If you work regular hours, it's straightforward. If your hours or pay vary, your employer should use the average over the 12 weeks before you received your redundancy notice.
Worked examples
Example 1: aged 28, 4 years service, earning £500/week
All 4 years fall in the 22-40 bracket. So you get 4 × 1 × £500 = £2,000. Simple.
Example 2: aged 35, 8 years service, earning £800/week
Your actual pay is £800, but the cap is £751. So we use £751. All 8 years fall between ages 27 and 35, all in the 22-40 bracket. That gives you 8 × 1 × £751 = £6,008.
Example 3: aged 52, 15 years service, earning £650/week
You started at 37. Here's the breakdown:
| Age bracket | Years | Rate | Amount |
|---|---|---|---|
| 37 to 40 | 3 | 1 × £650 | £1,950 |
| 41 to 51 | 12 | 1.5 × £650 | £11,700 |
Total: £13,650. All tax-free.
Example 4: aged 62, 25 years service, earning £900/week
Only 20 years count (the most recent 20). Weekly pay capped at £751. You started counting from age 42, so all 20 years are in the 41+ bracket. That gives 20 × 1.5 × £751 = £22,530. This is the maximum anyone can receive.
Example 5: aged 24, 6 years service, earning £400/week
You started at 18. Here's the breakdown:
| Age bracket | Years | Rate | Amount |
|---|---|---|---|
| 18 to 21 | 4 | 0.5 × £400 | £800 |
| 22 to 23 | 2 | 1 × £400 | £800 |
Total: £1,600.
Tax on redundancy pay
The first £30,000 of a redundancy payment is free from Income Tax and National Insurance. This includes your statutory redundancy and any enhanced amount your employer adds on top.
But not everything in a redundancy package counts toward this £30,000 allowance. These are taxed normally through PAYE:
- Pay in lieu of notice (PILON), whether contractual or not
- Outstanding holiday pay
- Bonus payments already earned
- Restrictive covenant payments (from April 2026, these attract employer NI too)
So your actual tax position depends on how the package is structured. If your employer pays you £50,000 and calls it all "redundancy", HMRC might disagree. They'll look at what portion relates to notice pay, accrued holiday, and other contractual entitlements, then tax those separately.
Example: tax on a £60,000 package
Suppose you receive £60,000 total. Your contractual notice is 3 months (£15,000). That £15,000 is taxed through PAYE like normal salary. The remaining £45,000 is the redundancy element. The first £30,000 is tax-free. The remaining £15,000 is taxed at your marginal rate.
If you're a basic-rate taxpayer, that's £15,000 × 20% = £3,000 in tax. But be careful: the £15,000 gets added to your other income for the year. If it pushes you into the higher-rate band (above £50,270), you'll pay 40% on the portion that crosses the threshold.
Enhanced redundancy packages
Employers aren't required to offer more than statutory. But many do, especially larger organisations. Common enhanced formulas include:
- 1 month's actual salary per year of service (no weekly cap)
- 2 weeks' actual pay per year of service plus statutory on top
- A fixed lump sum based on grade or seniority
- Statutory multiplied by 2 or 3
In the Civil Service, compulsory redundancy pays up to 12 months' salary for those under 6 years' service, rising to a maximum of 21 months for long-serving staff. Voluntary schemes are typically less generous but still well above statutory.
The NHS uses a formula based on the Section 16 provisions of the Agenda for Change handbook. Staff with over 2 years' service receive 1 month's pay per year of reckonable service, capped at 24 months' pay. That's substantially more than statutory for most NHS employees.
Negotiating your package
If you're being offered a settlement agreement (where you waive tribunal rights in exchange for an enhanced payment), you have leverage. Your employer wants certainty; you want money. Here's what typically works:
First, understand your alternatives. If you could bring an unfair dismissal claim, that's worth up to 12 months' salary at tribunal (though the median award is around £8,000). If there are discrimination issues, awards are uncapped. Your employer's legal team knows these numbers.
Second, check whether the consultation process has been followed correctly. For 20+ redundancies, your employer must notify the Redundancy Payments Service and consult for at least 30 days (45 days for 100+ redundancies). Failure to consult properly entitles you to a "protective award" of up to 90 days' gross pay.
Third, ask for specific things beyond cash: extended notice periods, outplacement support, pension contributions during notice, or a reference. These cost your employer less than cash but can be worth a lot to you.
ACAS data from 2025 shows that 35% of employees who negotiate their redundancy terms receive an improved offer. The average uplift is around 2 to 4 additional weeks' pay.
Notice periods and redundancy
Your notice period is separate from redundancy pay. You're entitled to the longer of your contractual notice or statutory notice. Statutory notice is 1 week per year of service, capped at 12 weeks.
If your employer asks you to leave immediately (garden leave or PILON), they must still pay you for the notice period. This payment is taxed as normal earnings through PAYE. It doesn't eat into your £30,000 tax-free redundancy allowance.
During your notice period, you're still employed. That means you continue to accrue holiday, receive pension contributions, and have access to company benefits. If your employer puts you on garden leave, you're still technically employed but not required to attend work.
What if your employer refuses to pay
If your employer simply refuses to pay statutory redundancy, you have 6 months from your last day of employment to submit a claim to an employment tribunal. There's no fee for redundancy pay claims. You must first go through ACAS early conciliation, which takes up to 6 weeks.
If your employer is insolvent (in administration, liquidation, or has simply ceased trading), you can claim directly from the National Insurance Fund. Apply through the Redundancy Payments Service on gov.uk. Processing takes 3 to 6 weeks on average. You'll receive statutory redundancy, unpaid wages (up to 8 weeks, capped at £751/week), holiday pay (up to 6 weeks), and notice pay (statutory entitlement only).
Keep records of everything: your contract, payslips, the date you were told about redundancy, any letters or emails about your dismissal. These speed up both tribunal claims and NIF applications significantly.
Common questions
Do part-time workers get less?
No. The formula uses your actual weekly pay, so a part-timer earning £300/week for 3 days gets the same formula applied to £300. You don't get penalised for working fewer hours.
What counts as continuous service?
Breaks of up to a week between contracts with the same employer don't break continuity. TUPE transfers preserve continuity too. But a genuine gap between jobs (even with the same employer) resets the clock.
Can I be made redundant while on maternity leave?
Yes, but you have special protections. You must be offered any suitable alternative vacancy in preference to other employees. If your employer doesn't offer you available alternatives, your dismissal is automatically unfair.
Is redundancy pay the same in Scotland?
Yes. Employment law is reserved to Westminster. The formula, caps, and tax rules are identical across England, Wales, and Scotland. Northern Ireland has its own employment legislation but the redundancy formula is essentially the same.