How UK Statutory Redundancy Pay Is Calculated

When an employer decides a role is no longer needed, the law gives qualifying employees a right to a minimum payout. That minimum is statutory redundancy pay. It is set by Part XI of the Employment Rights Act 1996 and is separate from anything your employer may offer on top.

This guide explains who qualifies, how the amount is worked out, how tax applies, and when a redundancy can also be challenged as an unfair dismissal.

Who qualifies for statutory redundancy pay?

You qualify if all four of the following apply.

You are an employee. Statutory redundancy pay is an employee right. Workers and the genuinely self-employed are not entitled to it. If your employment status is in doubt, that question should be resolved first.

You have at least 2 years' continuous service. Service is counted from the date your employment started with that employer (or an associated employer in certain group structures). Part-time employees count on the same basis as full-time employees.

The redundancy is genuine. A redundancy situation exists when the employer's requirement for employees to carry out work of a particular kind has ceased or diminished, or is expected to. The role itself must genuinely be disappearing, not simply the person in it. Tribunals look behind the label to the reality.

You have not unreasonably refused a suitable alternative role. If your employer offers you an alternative position and you turn it down without good reason, you may lose your entitlement. Whether an alternative role was "suitable" and whether a refusal was "unreasonable" are fact-specific questions, and tribunals have found both for and against employees in similar situations.

The age-banded formula

Statutory redundancy pay is calculated using three pieces of information: your age during each year of service, your length of service, and your weekly pay. To run the formula on your own numbers with the current cap applied, use the free redundancy pay calculator - or cross-check against the GOV.UK redundancy pay calculator.

The formula gives you a number of weeks' pay based on your age at the start of each complete year of service:

• Under 22: half a week's pay per year of service
• Age 22 to 40: one week's pay per year of service
• Age 41 and over: one and a half weeks' pay per year of service

Only the most recent 20 years of service count, even if you have worked longer. The law counts back from the date your employment ended, and any earlier years are left out (section 162(3) of the Employment Rights Act 1996). Once you have the 2 years needed to qualify, those first 2 years count towards the calculation like any other year.

The weekly pay used in the calculation is capped by statute. As of 6 April 2026 that cap is £751 a week (SI 2026/310 - the Employment Rights (Increase of Limits) Order 2026). If your actual gross week's pay is lower than £751, the lower figure is used. With 20 years' service at the highest age band, the theoretical maximum statutory redundancy payment is £22,530 (20 x 1.5 x £751). The cap is reviewed each April; using an outdated figure will produce the wrong answer. For the official rights overview, see GOV.UK: Redundancy - your rights.

A worked example

Take someone who is 45 years old, has 8 complete years of service, and earns £900 gross a week.

Of their 8 years of service (counting back from dismissal):

• 4 years fall at age 41 or over, earning 1.5 weeks' pay per year: 4 x 1.5 = 6 weeks
• 4 years fall in the 22-40 band, earning 1 week per year: 4 x 1 = 4 weeks

Total: 10 weeks of pay. Their week's pay is capped at £751, so statutory redundancy pay is 10 x £751 = £7,510.

(If the same person earned only £600 a week, the cap would not bite and the figure would be 10 x £600 = £6,000.)

Is statutory redundancy pay taxed?

Statutory redundancy pay is generally tax-free up to £30,000. This threshold applies to the combined total of all ex-gratia termination payments - meaning all payments made in connection with the end of employment that are not contractually owed to you as salary.

Two important exceptions apply.

Pay in lieu of notice (PILON) is fully taxable, regardless of the £30,000 threshold. This changed in April 2018. Even if your PILON is wrapped into a larger termination package, the notice-equivalent portion is treated as income for tax purposes.

Accrued but untaken holiday pay is also fully taxable. It represents salary you were owed and never received, so it sits outside the £30,000 exemption.

If your total ex-gratia payments (excluding PILON and holiday pay) exceed £30,000, you will pay income tax on the excess. You do not pay employee National Insurance on that excess; instead your employer pays employer (Class 1A) National Insurance on it. Pay in lieu of notice is different: it is treated as earnings, so income tax and employee National Insurance are both due on it. Enhanced redundancy payments from your employer count towards the £30,000 total alongside the statutory amount.

If you are uncertain how your package is structured for tax, HMRC guidance or an accountant's advice may be worth seeking before you accept.

Enhanced redundancy pay and settlement agreements

Many employers pay more than the statutory minimum. Some have contractual schemes that improve the formula - for example, two weeks' pay per year of service regardless of age, or no cap on weekly pay. Check your contract of employment and any staff handbook.

Enhanced amounts are often offered as part of a settlement agreement. A settlement agreement is a legally binding document in which you agree to give up employment claims in exchange for a financial payment. Before signing, you are required by law to take independent legal advice on its terms.

When evaluating an enhanced offer, the relevant comparison is the statutory floor plus the value of any tribunal claims you would be waiving. An enhanced redundancy payment alone, without considering what claims you are giving up, does not tell you whether the package is good value.

When redundancy might also be unfair dismissal

Redundancy is a potentially fair reason for dismissal, but it does not automatically make a dismissal fair. Tribunals have found dismissals were unfair even where a genuine redundancy situation existed, because the employer's process was flawed.

Common reasons a redundancy dismissal fails as a fair dismissal include:

Unfair selection criteria. If the pool of employees at risk was defined unfairly, or if the criteria used to score employees were discriminatory or applied inconsistently, the selection can be challenged.

Failure to consult properly. Employees at risk of redundancy are entitled to meaningful consultation before a final decision is made. Going through the motions without genuine dialogue is a common failure.

Failure to consider suitable alternative roles. Employers are expected to look across the business for roles the redundant employee might fill. Failing to do so, or offering only roles that are clearly unsuitable, can undermine the fairness of the dismissal.

Sham redundancy. If the role continues to exist under a different name, or is filled by someone else shortly after, a tribunal may find that the redundancy was not genuine and was instead a disguised dismissal.

If you have at least 2 years' service, you may be able to bring both a statutory redundancy pay claim and an unfair dismissal claim. Where employment ends on or after 1 January 2027, ordinary unfair dismissal needs only 6 months' service (Employment Rights Act 2025; commencement regulations made, SI 2026/559), so an unfair redundancy claim can be open even when statutory redundancy pay, which still needs 2 years, is not. The two have different tribunal deadlines: 6 months for redundancy pay, and 6 months less 1 day for unfair dismissal (3 months less 1 day where the dismissal took effect before 1 October 2026).

The time limit for redundancy pay claims

The time limit for claiming statutory redundancy pay is 6 months beginning with the relevant date (usually your leaving date). Within those 6 months, any one of these protects your right to the payment (section 164 of the Employment Rights Act 1996): the payment is agreed and paid, you claim it from your employer in writing, you refer the question to an employment tribunal, or you bring an unfair dismissal claim. This is different from the unfair dismissal limit of 6 months less 1 day (3 months less 1 day where employment ended before 1 October 2026).

If you miss the 6 months, there is a second, narrower chance. If, within the following 6 months, you make a written claim to your employer, refer the question to a tribunal or bring an unfair dismissal claim, the tribunal can still award the payment if it considers that just and equitable, looking at your reason for the delay and all the other circumstances (section 164(2)). That gives a final outer limit of 12 months from the relevant date, not 18 months, and the extra 6 months is at the tribunal's discretion, so relying on it is risky.

If you are close to either deadline, ACAS Early Conciliation must be started before an employment tribunal claim can be issued. Starting Early Conciliation stops both clocks while it is in progress.

What if your employer is insolvent?

If your employer cannot pay because they are insolvent, you can apply to the National Insurance Fund via the Insolvency Service. The government will pay your statutory redundancy pay directly, subject to the same £751 weekly-pay cap (as of 6 April 2026) and service limits that apply to the standard calculation.

You cannot recover enhanced contractual redundancy pay through the National Insurance Fund. That becomes an unsecured creditor claim in the insolvency proceedings.

This article is legal information, not legal advice. If your situation is complex - for example, if you have been offered a settlement agreement or believe your redundancy was not genuine - you may want to consider taking independent legal advice.