Statutory redundancy pay: how UK employers calculate and pay it

Making employees redundant in the UK is rarely straightforward. Along with all the practical and emotional challenges that come with a business restructure, employers hold a legal responsibility to ensure that redundancy payments are calculated accurately, paid correctly, and supported by clear communication. 

The UK recorded 113,000 redundancies between June and August 2026, according to the Office for National Statistics (ONS), with a redundancy rate of 3.8 per 1,000 employees. Understanding statutory redundancy pay is essential, as employees have different lengths of service, different ages, and different salary levels. A calculation that overlooks age-related multipliers, uses the incorrect weekly pay figure, or doesn’t account for contractual enhancements can result in an underpayment, a legal wrangle, or unnecessary financial exposure.

Statutory redundancy pay is the minimum financial compensation that employees are legally entitled to get when their role is being made redundant. Under the Employment Rights Act 1996, sections 162 to 164, employees qualify for statutory redundancy pay if they’ve been continuously employed by their employer for at least 2 years and are classed as employees, as opposed to self-employed contractors.

The redundancy pay calculation is based on 3 factors:

• The employee’s length of service.
• Their age during each completed year of employment.
• Their average weekly pay, subject to the statutory maximum.

The legislation set out different payment rates according to age:

• Under 22 – half a week’s pay for each completed year of service.
• Aged 22 to 40 – one week’s pay for each completed year of service.
• Aged 41 or over – one and a half weeks’ pay for each completed year of service.

An employee can claim up to a maximum of 20 years’ service. If someone has worked for a company for longer than that, it’s their most recent 20 years that must are included in the calculation.

Employers need to remember, however, that these are minimum statutory entitlements. A contractual redundancy scheme, which may offer more generous terms, should be considered separately. 

Start by establishing the employee’s qualifying service, then identify the appropriate age-related multiplier for each completed year and apply the relevant weekly pay sum. The statutory weekly pay cap is particularly important because it limits the amount of salary that can be used in the calculation, regardless of how much an employee earns. 

For redundancies that took effect from 6 April 2026, the maximum weekly pay in statutory redundancy calculations is £751.

This means:

• An employee earning £400 a week has their payment calculated using £400.
• An employee earning £751 a week has their payment calculated using £751.
• An employee earning £1,000 a week has their payment calculated using £751.

The maximum statutory redundancy payment for 2026 / 2027 is £22,530, which is calculated by multiplying 30 weeks’ entitlement (the maximum allowed) by the £751 weekly cap. These applicable limits should be checked against the relevant date of redundancy, rather than just using the current rate as a matter of course when calculating the statutory redundancy pay. 

For those workers with regular working hours and consistent pay, the calculation is relatively straightforward; the normal gross weekly earnings should be used. However, if the pay varies, employers need to calculate an average weekly pay over the 12 weeks preceding the date the employee received their redundancy notice. This can include contractual bonuses, commissions, and guaranteed overtime.

For example, an employee receives a weekly salary of £600, but regularly earns an extra £100 with commission, meaning their weekly pay would be £700, not £600. Where an employee’s earnings exceed £751, the statutory cap applies.

The following 3 examples show how the calculation works in practice. Please note that all figures use the 2026 / 2027 statutory weekly pay cap of £751 and assume that the relevant date falls on or after 6 April 2026.

An employee who earned £500 a week is made redundant aged 29, after 6 years of continuous service, having started work at the age of 23.

Their calculation is:

• 6 years of complete service, when aged 22 or over.
• 1 week’s pay for each qualifying year.
• Weekly pay of £500, which is below the statutory cap.
• Calculation: 6 × £500 = £3,000.

So the employee is entitled to £3,000 in statutory redundancy pay. 

A worker is made redundant at the age of 45, having joined the organisation when they were 33, and they earn £900 a week.

Their service falls into 2 age categories:

• 4 years aged between 22 and 40, at 1 week’s pay per year.
• 8 complete years aged 41 or over, at 1 and a half weeks’ pay per year.
• The statutory calculation is restricted to £751, despite them earning £900 a week.

So the calculation is:

• 4 years × 1 week = 4 weeks.
• 8 years × 1.5 weeks = 12 weeks.
• Total entitlement = 16 weeks.
• Calculation: 16 × £751 = £12,016.

So the worker is entitled to £12,016 statutory redundancy pay, demonstrating how the higher multiplier for employees aged 41 and over can make a significant difference to the final payout.

An employee is made redundant at 52, having given 24 complete years of service with the organisation. They earn £1,000 a week, but even though they’ve worked for 24 years, the statutory redundancy pay calculation is restricted to the most recent 20 years.

Those 20 years comprise:

• 9 completed years aged between 22 and 40, at 1 week’s pay per year.
• Eleven completed years aged 41 or over, at 1 and a half weeks’ pay a year.
• Their salary is above the statutory weekly pay cap, so is reduced to £751.

The calculation is:

• 9 years × 1 week = 9 weeks.
• Eleven years × 1.5 weeks = 16.5 weeks.
• Total entitlement = 25.5 weeks.
• Calculation: 25.5 × £751 = £19,150.50.

This employee is entitled to £19,150.50 in statutory redundancy pay. This example illustrates two important considerations for employers, namely the 20-year service limit and the increased multiplier for qualifying years from age 41.

When managing any sort of redundancy programme, understanding the distinction between statutory and contractual payments is essential. As mentioned, statutory redundancy pay is the legal minimum that an eligible employee must receive. 

Contractual pay, on the other hand, is an enhanced payment that an employer may provide according to the terms of an employment contract, collective agreement, or established redundancy policy. This is often offered to recognise longer service, provide additional financial support, or encourage voluntary redundancy.

The two most common approaches are:

1. Statutory payment, plus an additional contractual enhancement: under this arrangement, the employer calculates the statutory entitlement, then adds on the enhanced contractual payment.
2. An enhanced payment that incorporates the statutory pay: some schemes provide an overall payment that meets or exceeds the statutory minimum. The employer must establish whether the contractual wording permits the statutory entitlement to be offset against the enhanced amount.

It can’t be assumed that an enhanced payment replaces the statutory entitlement, so before calculating payments, the HR department should:

• Review the employee’s individual employment contract.
• Check relevant collective agreements.
• Examine the organisation’s redundancy policy.
• Establish whether enhanced payments are inclusive of statutory redundancy pay.
• Confirm that the final payment meets the employee’s statutory entitlement.

In the UK, statutory redundancy pay is usually free from income tax and National Insurance, provided the combined qualifying termination payments come under the £30,000 tax-free threshold. The same threshold applies to enhanced or contractual redundancy payments.

Where redundancy payments exceed £30,000, the excess is subject to tax. Employers must account for the applicable employer National Insurance liability on amounts above the threshold.

Not all payment is treated as redundancy compensation when an employee leaves.

The following payments are subject to income tax and National Insurance in the usual way:

• Any outstanding salary or wages.
• Pay for accrued but untaken holiday.
• Outstanding contractual bonuses and commission.
• Payment in lieu of notice (PILON).

Redundancy compensation and notice-related payments must be treated separately for payroll purposes. For example, an employee who receives £18,000 in redundancy compensation and £4,000 in PILON would receive the £18,000 tax-free, while the £4,000 would be taxable as earnings.

Calculating the correct amount is only the start of the process. Employees should receive a clearly worded statement explaining their entitlement and the pay should be made promptly, either when employment ends or as soon as possible afterwards.

A practical checklist for HR teams:

• Confirm eligibility by checking the employee status and the two-year continuous service requirement.
• Confirm the relevant date in order to calculate completed years of service and applicable statutory limits.
• Verify age and length of service to apply the correct multiplier to each qualifying year.
• Check weekly earnings, including relevant contractual earnings, to apply the correct statutory cap.
• Review contractual arrangements, establishing whether an enhanced scheme applies and how it fits with the statutory entitlement.
• Check tax treatment, separating redundancy compensation from notice pay, holiday pay, and other taxable earnings.
• Document the calculation by providing the affected employee with a breakdown of their payment.
• Arrange timely payment, ensuring the correct amount is processed through payroll.

Employers should also ensure that redundancy communications are clear and consistent. Employees are likely to have questions about their financial position, particularly when faced with an unexpected change in employment.

Redundancy payments are only part of the process when a reorganisation is under way. Redundancy can have a lasting impact on employees, particularly those who’ve spent many years with the same organisation or are uncertain about where to turn to next. 

There may be opportunities to explore alternatives before redundancies become necessary. Reskilling, redeployment, reduced working hours, or making voluntary arrangements can help organisations to retain valuable staff while managing costs.

If redundancies really are unavoidable, providing structured career transition support can help departing employees approach their next opportunity with revived confidence. Careerminds’ Career Transition Support Index found that 61% of companies provided severance benefits to exiting employees for at least three months, highlighting the importance that many employers place on supporting employees beyond immediate termination.

A redundancy calculation is one of the clearest tests as to whether a company lives up to its responsibilities when employment comes to an end. So, before implementing layoffs, ensure that every employee’s statutory entitlement has been calculated correctly, checked against their contractual terms, and explained clearly.