Quick Answer: How is Redundancy Pay Calculated?
Statutory redundancy pay is calculated based on three factors:
- Age — determines the multiplier per year of service
- Length of service — capped at 20 years
- Weekly pay — capped at £719 for 2026/27
Age Band Formula
| Age at Date of Redundancy | Pay Per Year of Service |
|---|---|
| Under 22 | 0.5 week's pay |
| 22–40 | 1 week's pay |
| 41 and over | 1.5 weeks' pay |
Maximum statutory redundancy pay: £21,570 (20 years × 1.5 × £719)
Use our redundancy pay calculator for instant calculations.
Who Qualifies for Statutory Redundancy Pay?
To qualify, an employee must:
- Be an employee (not a worker or contractor)
- Have at least 2 years' continuous service
- Be genuinely redundant (role is disappearing, not just being replaced)
Employees Who Do Not Qualify
| Situation | Entitlement |
|---|---|
| Less than 2 years' service | No statutory redundancy pay |
| Unreasonably refused suitable alternative employment | May lose entitlement |
| Dismissed for misconduct during notice period | May lose entitlement |
| Fixed-term contract expired (with redundancy clause) | May qualify |
Worked Examples
Example 1: Employee aged 35, 8 years' service, earning £600/week
All 8 years fall in the 22–40 age band:
- 8 years × 1 week's pay × £600 = £4,800
Example 2: Employee aged 47, 12 years' service, earning £800/week
Weekly pay is capped at £719.
- Years aged 41–47 (6 years): 6 × 1.5 × £719 = £6,471
- Years aged 35–40 (6 years): 6 × 1 × £719 = £4,314
- Total: £10,785
Example 3: Employee aged 52, 22 years' service, earning £500/week
Service is capped at 20 years:
- Years aged 41–52 (11 years, capped at what fits in 20): 11 × 1.5 × £500 = £8,250
- Years aged 32–40 (9 years): 9 × 1 × £500 = £4,500
- Total: £12,750
Enhanced Redundancy Pay
Many employers offer enhanced redundancy pay above the statutory minimum. Common approaches include:
| Enhancement Type | Example |
|---|---|
| Multiplier enhancement | 2× the statutory formula |
| Uncapped weekly pay | Use actual salary instead of £719 cap |
| Additional service credit | Count all service (not capped at 20 years) |
| Flat-rate top-up | Statutory + fixed lump sum |
Contractual vs Discretionary
- Contractual enhanced redundancy: Written into the employment contract. The employer is legally bound to pay it.
- Discretionary enhanced redundancy: Offered at the employer's choice. Be careful — if you have always paid it, it may become an implied contractual term.
Tax Treatment of Redundancy Pay
| Payment Type | Tax Treatment |
|---|---|
| Statutory redundancy pay | Tax-free |
| Enhanced redundancy pay (first £30,000) | Tax-free |
| Amounts above £30,000 | Subject to income tax (not NI) |
| Payment in lieu of notice (PILON) | Subject to income tax and NI |
| Holiday pay on termination | Subject to income tax and NI |
The £30,000 tax-free allowance covers both statutory and enhanced redundancy pay combined.
Consultation Requirements
Individual Consultation
For all redundancies, employers must:
- Explain why redundancy is necessary
- Discuss selection criteria
- Consider alternatives to redundancy
- Allow the employee to respond and suggest alternatives
- Consider responses genuinely
Collective Consultation
When proposing 20 or more redundancies at one establishment within 90 days, additional obligations apply:
| Number of Proposed Redundancies | Minimum Consultation Period |
|---|---|
| 20–99 employees | 30 days before first dismissal |
| 100+ employees | 45 days before first dismissal |
Collective redundancy consultation requires notifying the Secretary of State (via HR1 form) and consulting with employee representatives or trade unions.
Selection Criteria
Redundancy selection must be fair, objective, and non-discriminatory. Commonly used criteria include:
- Skills, qualifications, and experience
- Performance records and appraisals
- Attendance record (excluding protected absences)
- Disciplinary record
- Length of service (but this alone may be age-discriminatory)
Avoid: "Last in, first out" as a sole criterion — this can constitute indirect age discrimination.
The Redundancy Process: Step by Step
- Establish genuine redundancy situation — business case documented
- Define the pool — which roles are at risk
- Agree selection criteria — objective, measurable, non-discriminatory
- Consult individually — meaningful consultation with each affected employee
- Apply selection criteria — score and rank employees
- Consider alternatives — suitable alternative employment within the organisation
- Give notice — statutory or contractual notice
- Calculate redundancy pay — statutory + any enhanced terms
- Provide written statement — detailing how the payment was calculated
- Support the transition — outplacement support, references
Managing Redundancy with Grove
Grove helps manage the redundancy process:
- Redundancy pay calculator with age-band automation
- Service length tracking from employee records
- Notice period management linked to contracts
- Document generation for consultation letters and payment breakdowns
Use our free redundancy pay calculator or get started with Grove.
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Rachel Richardson
Head of Growth & Marketing, Grove HR
Rachel leads growth and marketing at Grove HR, with over a decade of experience in UK HR technology. She writes practical guides to help small businesses navigate employment law and build better workplaces.
Frequently Asked Questions
How much redundancy pay am I entitled to?
Statutory redundancy pay depends on your age, length of service (up to 20 years), and weekly pay (capped at £719 in 2026/27). You receive 0.5 week per year under 22, 1 week per year aged 22–40, and 1.5 weeks per year aged 41+. The maximum is £21,570.
Do I have to pay tax on redundancy pay?
The first £30,000 of redundancy pay (statutory plus enhanced) is tax-free. Amounts above £30,000 are subject to income tax but not National Insurance. Pay in lieu of notice is always taxable.
How many years service do you need for redundancy pay?
You need at least 2 years of continuous service with the same employer to qualify for statutory redundancy pay. Service is capped at 20 years for calculation purposes.
What is the weekly pay cap for redundancy in 2026?
The weekly pay cap for statutory redundancy calculations in 2026/27 is £719. This is the maximum weekly amount used in the calculation, regardless of actual earnings.
Can my employer offer less than statutory redundancy pay?
No. Statutory redundancy pay is a legal minimum for qualifying employees. Employers can offer more (enhanced redundancy) but cannot pay less than the statutory amount.
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