How Is Redundancy Calculated

Calculate your statutory redundancy pay based on UK employment law

How is Redundancy Calculated in the UK? A Complete Guide (2024)

Redundancy is a complex but important aspect of UK employment law that affects thousands of workers each year. Whether you’re facing redundancy or simply want to understand your rights, this comprehensive guide explains exactly how redundancy pay is calculated, what you’re entitled to, and how to ensure you receive fair treatment.

What is Statutory Redundancy Pay?

Statutory redundancy pay is the minimum amount your employer must pay you if you’re made redundant, provided you meet the eligibility criteria. This is separate from any notice pay, holiday pay, or contractual redundancy payments you might be entitled to.

Eligibility for Statutory Redundancy Pay

To qualify for statutory redundancy pay, you must:

• Be an employee working under a contract of employment
• Have at least 2 years of continuous service with your employer
• Have been dismissed because of redundancy (not for misconduct or other reasons)

Certain groups like crown servants, police officers, and some apprentices have different redundancy arrangements.

How Redundancy Pay is Calculated

The statutory redundancy pay calculation follows a specific formula based on:

1. Your age – Different multipliers apply to different age brackets
2. Your weekly pay – Capped at £643 per week (as of April 2024)
3. Your length of service – Up to a maximum of 20 years

Age	Multiplier per year of service	Maximum years counted
Under 22	0.5 week’s pay	All years
22-40	1 week’s pay	All years
41+	1.5 week’s pay	All years

The calculation works as follows:

1. Calculate your weekly pay (capped at £643)
2. For each full year of service:
   • Under 22: 0.5 × weekly pay
   • 22-40: 1 × weekly pay
   • 41+: 1.5 × weekly pay
3. Add up all these amounts for your total statutory redundancy pay

Maximum Statutory Redundancy Pay

As of April 2024, the maximum statutory redundancy pay is £21,000 (or £643 × 1.5 × 20 years = £19,290, but the higher limit applies). This maximum increases each year in line with inflation.

Additional Payments You Might Receive

Beyond statutory redundancy pay, you might also be entitled to:

• Notice pay – Payment for your notice period (whether worked or not)
• Holiday pay – Payment for any untaken holiday
• Contractual redundancy pay – If your contract provides better terms than the statutory minimum
• Payment in lieu of notice (PILON) – If your contract allows it

Tax Treatment of Redundancy Pay

Redundancy payments have special tax treatment:

• The first £30,000 of redundancy pay is tax-free
• Any amount above £30,000 is taxed as income
• Notice pay and holiday pay are always taxable as earnings
• Contractual redundancy pay (above statutory) may be taxable depending on your contract

Payment Type	Tax Status	National Insurance
Statutory redundancy pay (up to £30,000)	Tax-free	NI-free
Statutory redundancy pay (over £30,000)	Taxable	NI-free
Notice pay	Taxable	Subject to NI
Holiday pay	Taxable	Subject to NI
Contractual redundancy pay	Depends on contract	Depends on contract

How to Calculate Your Notice Period

Your notice period depends on your length of service:

• 1 month to 2 years: 1 week’s notice
• 2 to 12 years: 1 week’s notice for each year of service
• 12+ years: 12 weeks’ notice maximum

Your contract might give you more generous notice periods than the statutory minimum.

What to Do If You’re Made Redundant

1. Check your eligibility – Confirm you qualify for redundancy pay
2. Review your contract – Look for any enhanced redundancy terms
3. Calculate your entitlement – Use our calculator above
4. Check your notice period – Ensure you receive proper notice or pay in lieu
5. Claim holiday pay – You’re entitled to pay for any untaken holiday
6. Consider your options – You might be offered alternative employment
7. Get it in writing – Always request a written statement of your redundancy terms
8. Seek advice if needed – Contact ACAS or a solicitor if you have concerns

Common Redundancy Mistakes to Avoid

Many employees make these costly mistakes during redundancy:

• Not checking calculations – Always verify your redundancy pay is correct
• Ignoring contractual terms – Your contract might offer better terms than statutory
• Forgetting holiday pay – You’re entitled to pay for all untaken holiday
• Not negotiating – Some employers will improve offers if asked
• Missing deadlines – You have 6 months to claim unpaid redundancy pay
• Not getting it in writing – Verbal agreements are hard to enforce
• Overlooking tax implications – Some payments might be taxable

Alternative Employment and Redundancy

If your employer offers you suitable alternative employment, your redundancy rights might be affected:

• If you accept the offer, you won’t be entitled to redundancy pay
• You have a 4-week trial period to decide if the new role is suitable
• If the new role isn’t suitable, you can still claim redundancy
• Your continuity of employment is preserved if you accept the new role

Redundancy During Maternity/Paternity Leave

Special protections apply if you’re made redundant during or shortly after:

• Maternity leave
• Paternity leave
• Adoption leave
• Shared parental leave

In these cases, you should be offered any suitable alternative vacancies before other employees. If you’re selected for redundancy during these periods, it might be considered automatic unfair dismissal.

Appealing Against Redundancy

If you believe your redundancy is unfair, you can:

1. Raise a grievance with your employer
2. Contact ACAS for early conciliation
3. Make a claim to an employment tribunal (within 3 months of dismissal)

Potential reasons your redundancy might be unfair include:

• Being selected for discriminatory reasons
• Not being consulted properly
• Not being offered suitable alternative employment
• The redundancy not being genuine

Important: This guide provides general information only. For specific advice about your situation, consult a qualified employment law solicitor or contact ACAS (Advisory, Conciliation and Arbitration Service).

Useful Resources

For official information about redundancy rights and calculations:

• GOV.UK – Redundancy: Your Rights
• Citizens Advice – Redundancy
• ACAS – Redundancy Advice

Frequently Asked Questions

Can I be made redundant while on furlough?

Yes, you can be made redundant while on furlough. Your redundancy pay should be based on your normal wages, not your furlough pay.

What if my employer can’t afford to pay redundancy?

If your employer is insolvent, you can claim redundancy pay from the National Insurance Fund through the Insolvency Service.

Does redundancy affect my pension?

Your pension rights are protected during redundancy. You should receive any pension contributions you’re owed up to your leaving date.

Can I get redundancy pay if I resign?

Generally no, unless you can prove constructive dismissal (where your employer’s actions forced you to resign).

What’s the difference between redundancy and dismissal?

Redundancy is when your job no longer exists. Dismissal is when you’re fired for reasons like performance or conduct. The rights and payments differ significantly.