Facing redundancy is stressful, but understanding your legal rights can make the financial side less daunting. If you have been employed for at least two years, you are entitled to statutory redundancy pay, and many employers offer enhanced packages on top of this. This guide explains how the calculation works, what the current limits are, and how redundancy payments are taxed.
Who Qualifies for Statutory Redundancy Pay?
To qualify for statutory redundancy pay, you must be an employee (not a self-employed contractor) with at least 2 years of continuous service with your current employer. The following types of worker are eligible:
- Full-time employees
- Part-time employees
- Fixed-term contract workers (when the contract ends due to redundancy)
- Employees on maternity, paternity, or adoption leave
Agency workers, self-employed contractors, and employees with less than 2 years of service do not qualify for statutory redundancy, though they may still be entitled to notice pay.
How Statutory Redundancy Pay Is Calculated
The calculation uses three factors: your age at the date of redundancy, your length of service (capped at 20 years), and your weekly pay (capped at £700 for the 2026/27 tax year).
| Age Band | Entitlement per Year of Service |
|---|---|
| Under 22 | Half a week's pay |
| 22 to 40 | One week's pay |
| 41 and over | One and a half week's pay |
If your years of service span multiple age bands, each year is calculated at the rate that applied to your age during that year. The calculation works backwards from your date of redundancy.
Example Calculation
Sarah is 45 years old, earns £800 per week (capped at £700 for the calculation), and has worked for her employer for 12 years. Her redundancy calculation:
- 5 years aged 41 and over: 5 x 1.5 x £700 = £5,250
- 7 years aged 22 to 40: 7 x 1.0 x £700 = £4,900
- Total statutory redundancy: £10,150
The Weekly Pay Cap
For the 2026/27 tax year, the weekly pay cap is £700. This cap is reviewed annually and typically increases in line with inflation. If you earn more than the cap, only £700 is used in the statutory calculation. Your employer may choose to use your actual salary for any enhanced redundancy payment they offer on top of the statutory amount.
| Tax Year | Weekly Pay Cap | Maximum Statutory Payout |
|---|---|---|
| 2026/27 | £700 | £21,000 |
| 2025/26 | £643 | £19,290 |
| 2024/25 | £643 | £19,290 |
| 2023/24 | £571 | £17,130 |
Enhanced Redundancy Packages
Many employers offer more than the statutory minimum. Common enhancements include:
- Multiplied statutory: Paying double or triple the statutory calculation
- Actual salary: Using your real weekly pay instead of the capped amount
- Flat payment: A fixed sum per year of service (for example, £2,000 per year)
- Notice pay: Paying your notice period as a lump sum rather than requiring you to work it
Enhanced terms are contractual, not statutory, so they vary by employer. Check your employment contract, staff handbook, or any collective bargaining agreement.
Tax Treatment of Redundancy Pay
The tax position on redundancy pay is more favourable than regular income:
- Statutory redundancy pay is always tax-free
- Enhanced redundancy pay is tax-free up to £30,000
- Amounts above £30,000 are taxed as income at your marginal rate
- Pay in lieu of notice (PILON) is always taxable, whether contractual or not
- Holiday pay for accrued but untaken leave is taxable as earnings
The £30,000 tax-free limit applies to the total termination payment, combining statutory and enhanced elements. Employer National Insurance contributions at 13.8% apply to any amount above £30,000.
Your Rights During Redundancy
Beyond pay, you have several legal protections during a redundancy process:
- Consultation: Your employer must consult with you before making you redundant. For 20 or more redundancies, collective consultation with employee representatives is required at least 30 days (or 45 days for 100+ redundancies) before dismissals take effect.
- Fair selection: Employers must use fair and objective criteria for selecting who is made redundant. "Last in, first out" is allowed but must not discriminate.
- Alternative employment: Your employer should consider whether any suitable alternative roles exist within the organisation.
- Time off: Employees being made redundant with 2+ years of service are entitled to reasonable paid time off to look for new work or arrange training.
- Notice period: You are entitled to your contractual notice period or statutory minimum notice (1 week per year of service, up to 12 weeks), whichever is longer.
What If Your Employer Cannot Pay?
If your employer goes insolvent and cannot pay your redundancy, you can claim from the National Insurance Fund via the Redundancy Payments Service. This covers statutory redundancy pay, unpaid wages (up to 8 weeks), holiday pay (up to 6 weeks), and notice pay (limited to statutory notice). Claims must be submitted within 6 months of the employer's insolvency date.
Calculate your exact statutory redundancy pay based on your age, salary, and years of service.
Try the Redundancy Pay Calculator