How UK Redundancy Pay Works: Your Complete Guide for 2025

Getting made redundant is stressful enough without having to figure out whether your employer is paying you the right amount. The good news is that statutory redundancy pay in the UK follows a fixed formula, so once you understand how it works you can check the numbers yourself in a few minutes.

This guide covers everything: who qualifies, how the calculation works, what the tax rules are, and what to do if something does not add up.

Who qualifies for statutory redundancy pay

To qualify for statutory redundancy pay you need to have been employed continuously by the same employer for at least two years. This is a hard cut-off. If you have been there 23 months you get nothing under the statutory scheme, though your employer might still choose to pay something voluntarily.

You also need to have been dismissed by reason of redundancy, which means your role has genuinely disappeared or significantly changed rather than the employer simply wanting to replace you with someone else. If the position is being refilled with a different person shortly after, that raises questions about whether the redundancy was genuine.

Agency workers, self-employed contractors, independent freelancers and workers on fixed-term contracts that simply expire are generally not entitled to statutory redundancy pay, though there are exceptions depending on your working arrangements.

How the calculation actually works

The statutory redundancy calculation uses three numbers: your age, how many complete years of continuous employment you have with the employer, and your gross weekly pay. The age element might surprise people who are not familiar with the rules.

Service is capped at 20 years, so even if you have worked somewhere for 30 years you only get credit for 20. The weekly pay figure is capped too. For 2025/26 the cap is £643 per week. If you earn £1,000 a week, the calculation still only uses £643.

A worked example

Take someone who is 45 years old, earns £800 per week, and has worked for their employer for 8 years. The weekly pay used in the calculation is £643 because that is the cap. For the 8 years of service, all of them fall in the age 41 plus bracket, so each year earns one and a half weeks. The calculation is 8 multiplied by 1.5 multiplied by £643, which comes to £7,716.

If the same person were 38 instead of 45, all years would fall in the basic rate bracket, giving 8 multiplied by 1 multiplied by £643, which is £5,144. Age genuinely makes a significant difference to the final figure.

The weekly pay cap and how it changes

The statutory weekly pay cap is reviewed by the government each April. It has risen steadily over the years and for the 2025/26 tax year sits at £643. If you were made redundant last year the cap was slightly lower, so if you are checking a past payment bear that in mind.

Your actual weekly gross pay, not take-home pay, is what goes into the calculation. If your pay varies, for example because you work overtime or receive irregular bonuses, HMRC uses an average of the 12 weeks before redundancy. Contractual bonuses that you receive regularly usually count, but purely discretionary one-off payments typically do not.

Enhanced redundancy pay

Statutory redundancy pay is the legal minimum. Many employers offer more, sometimes significantly more, either because their employment contracts specify it or because they want to be generous. This is called enhanced redundancy pay.

Enhanced packages often calculate pay without applying the £643 weekly cap, use a higher multiplier per year of service, or simply add a lump sum on top. Your employment contract or the company handbook should set out what you are entitled to. If your employer has made redundancies before and paid enhanced amounts then, you may be able to argue that this creates an implied contractual right to the same treatment now.

If you are in a senior role or have strong grounds for negotiation, the statutory amount is rarely the final word. Many redundancy payments are negotiated upward, particularly when the employer wants to avoid an Employment Tribunal claim or simply wants the departure to go smoothly.

Tax on redundancy pay

The first £30,000 of any redundancy payment is completely free of income tax. This applies to both statutory and enhanced redundancy pay. Anything above £30,000 is taxed as ordinary income in the year you receive it.

National Insurance does not apply to redundancy pay at all, which makes it more tax-efficient than salary income. However, if your employer pays you in lieu of your notice period, that payment is treated differently. Pay in lieu of notice, sometimes called PILON, is taxed as normal employment income because it is essentially salary for a period you would have worked.

If your total redundancy package is above £30,000, your employer should withhold the relevant income tax at source before paying you. If you are a higher rate taxpayer, you may need to declare it on a self-assessment return to ensure you have paid the right amount.

What if you think the calculation is wrong

If you believe your employer has underpaid your redundancy, start by asking for a written breakdown of how the figure was calculated. Employers are required to provide this under the Employment Rights Act 1996.

Common errors include using the wrong start date for your employment, not accounting for all complete years of service, applying the wrong age multiplier, or misapplying the weekly pay cap. Our free redundancy calculator can help you run the correct numbers independently so you know what to expect before you raise the issue.

If you cannot resolve it directly with your employer, you can make a claim to an Employment Tribunal. The time limit for bringing an unfair dismissal or redundancy pay claim is three months minus one day from the date your employment ended. This deadline is strict and only extended in exceptional circumstances, so do not delay.

Being placed at risk and the consultation process

Before you are made redundant, your employer should follow a fair procedure. For individual redundancies this means warning you that you are at risk, giving you meaningful consultation, considering alternatives, and applying a fair selection process if your role is competing against others.

For collective redundancies of 20 or more people within 90 days, the employer must consult with elected employee representatives for at least 30 days. For 100 or more redundancies within 90 days the consultation period extends to 45 days. Failing to consult properly can result in a protective award of up to 90 days pay per affected employee on top of any redundancy entitlement.

You are also entitled to take reasonable paid time off during the notice period to look for work or arrange training, provided you have worked for your employer for at least two years.

Redundancy versus dismissal

If you are dismissed for any other reason, including performance, conduct or expiry of a fixed-term contract, you are not entitled to redundancy pay. Your employer may try to dress up what is really a dismissal as a redundancy to avoid other obligations, or alternatively may mislabel a genuine redundancy as a capability dismissal to avoid paying. If you are unsure which applies to your situation, an employment solicitor or Citizens Advice can help you understand your position.