If you have been selected for redundancy, you may be entitled to a financial payment. This guide outlines what redundancy pay is, how it is calculated, who qualifies, and what options are available if you do not receive what you believe you are owed. It also covers related payments and tax considerations, all from the perspective of UK employment law.

What is redundancy pay?

Understanding statutory vs. contractual redundancy pay

Redundancy pay refers to the compensation some employees receive when their role is eliminated due to a genuine redundancy situation. There are two types of redundancy pay:

• Statutory redundancy pay, which is the legal minimum employers must pay qualifying employees.

• Contractual (or enhanced) redundancy pay, which is any additional amount provided under the terms of an employment contract or employer policy.

Who qualifies for redundancy pay under UK Law?

Not all employees are automatically entitled to receive redundancy pay. Entitlement depends on a combination of legal and contractual factors. Statutory redundancy pay is only available to those who meet the eligibility criteria set out in employment legislation.

Are you entitled to redundancy pay?

Minimum service requirements

To qualify for statutory redundancy pay, you must have at least two years’ continuous employment with your employer. This service must be unbroken, though certain types of absences (such as maternity leave) do not break continuity.

How continuous employment is calculated

Continuous service begins on your start date and ends on the date your employment ends. Time spent on furlough or certain types of leave generally counts toward service, but breaks in employment can affect entitlement.

When redundancy pay might not be due

You are not usually entitled to redundancy pay if:

• You have worked for your employer for less than two years.

• You are offered suitable alternative employment and unreasonably refuse it.

• You are dismissed for gross misconduct.

• You are a self-employed contractor or genuinely freelance.

How redundancy pay is calculated

Statutory redundancy pay formula

Statutory redundancy pay is calculated based on three factors:

• Your age at the time of redundancy.

• Your length of continuous service, up to a maximum of 20 years.

• Your weekly gross pay, capped at a statutory maximum (as of April 2025, this cap is £700 per week).

The calculation works as follows:

• 0.5 week’s pay for each full year worked under age 22.

• 1 week’s pay for each full year between ages 22 and 40.

• 1.5 week’s pay for each full year aged 41 or older.

Weekly pay caps and age bands

The redundancy pay you receive is based on your actual weekly earnings, but capped by the statutory limit. The cap is reviewed annually by the government and may change.

Length of service and calculation limits

Only full years of service are counted, up to a maximum of 20 years. Partial years are not considered in the calculation. The statutory maximum ensures that redundancy payouts are consistent with employment law, though contractual terms may provide for a higher amount.

Enhanced or contractual redundancy pay

What Is enhanced redundancy pay?

Enhanced redundancy pay is any additional payment beyond the statutory minimum. Employers may offer this on a discretionary basis, or it may be set out in your employment contract or staff handbook.

Checking your employment contract or staff policies

You should check the terms of your contract and any relevant company policies. Some employers offer a set number of weeks’ pay per year of service, or a lump sum, as part of an enhanced redundancy package.

Whether enhanced pay affects statutory entitlements

Receiving an enhanced redundancy payout does not affect your entitlement to statutory redundancy pay. In many cases, enhanced pay includes the statutory amount but offers more favourable terms.

Redundancy pay and other payments

Pay in lieu of notice (PILON)

If your employment ends immediately, your employer may pay you in lieu of notice. This is separate from redundancy pay and covers what you would have earned during your notice period.

Holiday pay and outstanding entitlements

You are entitled to be paid for any unused statutory holiday entitlement up to your termination date. This payment is separate from any redundancy settlement or redundancy pay.

Settlement agreements and redundancy pay

In some cases, employers may offer a redundancy settlement agreement. This is a legally binding document in which you agree not to pursue legal claims against your employer in return for a financial payment. The agreement may include redundancy pay, notice pay, and other sums.

Tax and redundancy payments

When redundancy pay is tax-free

Statutory redundancy pay is usually tax-free up to £30,000. If you receive more than this—such as through a redundancy settlement or enhanced payout—any amount over £30,000 may be subject to income tax.

Tax treatment of payments above £30,000

PILON and holiday pay are taxed as normal earnings. However, redundancy payments, whether statutory or contractual, may be partially exempt. You should seek confirmation from your employer or a tax adviser to ensure correct treatment.

If you don’t receive the redundancy pay you’re owed

Raising the issue with your employer

If you believe you are entitled to redundancy pay and have not received it, you should first raise the issue with your employer. This can be done informally or through the company’s grievance procedure.

Making a claim to an Employment Tribunal

If you are unable to resolve the issue internally, you may be able to bring a claim to an employment tribunal. Claims must usually be made within six months of the date your employment ended. Before submitting a claim, you must notify ACAS and go through the Early Conciliation process.

Claiming from the Insolvency Service if your employer is insolvent

If your employer is insolvent and cannot pay what you are owed, you may be able to claim redundancy pay, unpaid wages, and other entitlements from the Insolvency Service. These claims are subject to statutory limits.

Getting help and advice

When to Seek Legal Advice

Legal advice is recommended if:

• You are unsure whether you are entitled to a redundancy payout.

• You are offered a settlement agreement.

• You believe the process was unfair or discriminatory.

An employment lawyer can review your situation and help clarify your entitlements under redundancy law.

How we can help you

Our employment lawyers can advise you on your rights relating to redundancy pay. They can help you understand the process and advise on next steps if you are in dispute with your employer.