UK Redundancy Pay 2025: How to Calculate Your Statutory Entitlement

Being made redundant is stressful enough without having to decode the formula that determines how much you are owed. The statutory redundancy pay calculation is built on three variables: your age, your length of service, and your weekly pay. Each of those inputs has its own rules, and the final sum depends on how the government's age multipliers are applied to each year of qualifying employment. Getting it wrong, either by your employer understating the figure or by you not knowing what you are entitled to, is surprisingly common.

This article walks through the full calculation, the weekly pay cap that applies in 2025/26, what the £30,000 tax-free threshold means in practice, and what your rights are if your employer offers an enhanced package. You can run your own figures through our redundancy pay calculator to get an exact figure based on your age and years of service.

The Statutory Redundancy Formula Explained

The calculation assigns a different multiplier to each year of service depending on your age during that year. For each complete year of service you were under 22, you receive half a week's pay. For each year you were aged 22 to 40, you receive one week's pay. For each year you were 41 or over, you receive one and a half weeks' pay. Service is counted backwards from the date of redundancy, up to a maximum of 20 years. So even if you have worked for an employer for 30 years, only the most recent 20 count toward the calculation.

The age you were during each year of service is what matters, not your age today. If you are 45 and were made redundant after 12 years with one employer, the calculation has to trace back through those 12 years and assign the appropriate multiplier to each one. Years worked when you were between 33 and 40 carry a multiplier of one; years from 41 onwards carry a multiplier of one and a half. The precise result depends on the age split across your service history, which is why the figure can be harder to estimate by hand than it appears.

The Weekly Pay Cap and What It Means for Higher Earners

Your actual weekly pay is used in the calculation, but only up to the statutory weekly pay cap, which is uprated by the government each April. For the 2025/26 tax year, the cap stands at £700 per week. If you earn £1,200 per week, only £700 counts for redundancy purposes. This cap bites particularly hard for higher earners, who may receive a statutory payment that feels very small relative to their actual salary. It is one of the most common sources of frustration for people going through redundancy who had expected a larger sum.

The maximum statutory redundancy payment is reached when someone has the full 20 years of qualifying service, all of it worked at age 41 or above, and earns above the weekly cap. At £700 per week, 20 years of service, and a multiplier of 1.5, the maximum statutory payment comes to £21,000. In reality most people receive significantly less than this, because age and service history rarely align to produce the maximum outcome, and many redundancies happen before someone has built up 20 years with one employer.

For workers on variable pay, including those on zero-hours contracts or with irregular hours, the weekly pay figure is calculated as the average weekly earnings over the 12 weeks before redundancy, excluding any weeks not worked. This averaging approach can work for or against you depending on whether the weeks before redundancy were representative of your normal earnings.

The Two-Year Qualifying Period

You only become entitled to statutory redundancy pay once you have two complete years of continuous service with the same employer. Employees with less than two years' service have no legal right to a redundancy payment, regardless of how long they have been in their role or how much they contributed. This is a firm threshold, not a grey area. Some employers choose to pay departing employees something as a goodwill gesture, but they are under no legal obligation to do so.

Continuous service means unbroken employment with the same employer, though there are rules about what counts as a break. Certain absences do not break continuity, including maternity leave, paternity leave, and periods of illness or injury. A change in ownership of the business does not break continuity if the new owner takes on the existing workforce. However, gaps between contracts that are not covered by these protections can break the continuity clock and reset the two-year qualifying period from zero.

If you are approaching the two-year mark and your employer announces a redundancy process, it is worth checking whether your start date has been correctly recorded. Errors in employment records are not unusual, and even a discrepancy of a few weeks can matter if you are close to the qualifying threshold. You can check your statutory notice entitlement alongside this using our notice period calculator.

Tax Treatment: The £30,000 Exemption and Its Limits

Statutory redundancy pay is tax-free up to £30,000 when it is a genuine payment on termination of employment. This exemption is not specific to the statutory element; it applies to the total termination payment you receive, which can include contractual and enhanced redundancy pay alongside the statutory amount. The first £30,000 is free from income tax and National Insurance. Any sum above £30,000 is treated as employment income and taxed accordingly at your marginal rate, with employer NICs also applying to the excess.

What many people do not realise is that certain payments made at the point of redundancy fall outside the £30,000 exemption entirely. Notice pay is the clearest example. Since April 2018, post-employment notice pay (PENP) has been subject to income tax and NICs regardless of how it is packaged, including when it is paid as payment in lieu of notice. Holiday pay accrued but untaken is also taxable. The tax-free £30,000 applies only to amounts that are genuinely compensation for the loss of employment, not to payments that are really just remuneration for work done or notice that should have been worked.

Enhanced Redundancy Pay and When to Negotiate

Many employers, particularly larger organisations and those in the public sector, offer enhanced redundancy packages that exceed the statutory minimum. These might be based on actual weekly pay rather than the capped figure, use a higher multiplier per year of service, or simply add a lump sum on top of the statutory calculation. Whether an enhanced package is offered and how generous it is often depends on the employer's internal policy, any collective agreements with trade unions, and the commercial pressure they are under at the time of the redundancy.

Enhanced pay is not automatic. You generally need to check your employment contract and any staff handbook to see whether you have a contractual right to an enhanced package. If nothing is contractually guaranteed but others in previous rounds received more than the statutory minimum, that does not automatically entitle you to the same. However, if an employer has a consistent practice of paying enhanced redundancy and you can demonstrate that practice, an employment tribunal might take a dim view of it being withdrawn for your cohort.

There is often more room to negotiate than people realise, especially in one-to-one situations rather than large collective redundancy exercises. Employers may offer additional payments in exchange for a settlement agreement under which you waive the right to bring employment tribunal claims. Before signing any such agreement, you are legally required to take independent legal advice. The employer usually contributes a fixed amount toward your legal fees for this purpose. Running your expected statutory payment through our UK salary calculator can help you understand your financial position while you consider any offer made.

Collective Redundancy: Consultation Rights When Many Jobs Are at Risk

When an employer proposes to make 20 or more employees redundant within a 90-day period at the same establishment, collective redundancy consultation obligations are triggered. For 20 to 99 redundancies, the minimum consultation period is 30 days before the first dismissal takes effect. For 100 or more redundancies, that period extends to 45 days. The employer must notify the Redundancy Payments Service using form HR1 before the consultation begins, and failing to do so is a criminal offence.

Consultation must be genuine, which means considering ways to avoid redundancies, reduce the number affected, and mitigate the consequences for those who are dismissed. It must be conducted with elected employee representatives or recognised trade union representatives. If an employer fails to consult properly, a tribunal can award up to 90 days' gross pay per affected employee as a protective award. This is separate from any unfair dismissal claim and represents a significant financial penalty for employers who cut corners on process.