How Is Redundancy Pay Calculated

Calculate your statutory redundancy pay entitlement in the UK

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

Redundancy pay (also called severance pay) is the money you’re entitled to by law if you’re made redundant from your job. The amount you receive depends on several factors including your age, length of service, and weekly pay. This comprehensive guide explains exactly how redundancy pay is calculated, what you’re legally entitled to, and how to ensure you receive everything you’re owed.

What is Statutory Redundancy Pay?

Statutory redundancy pay is the minimum amount your employer must pay you if you’re made redundant. The rules are set by UK government legislation, specifically the Employment Rights Act 1996. This is separate from any enhanced redundancy packages your employer might offer.

To qualify for statutory redundancy pay, you must:

• Be an employee working under a contract of employment
• Have worked for your employer for 2 years continuously
• Have been dismissed because of redundancy

How Statutory Redundancy Pay is Calculated

The formula for calculating statutory redundancy pay is:

1. Half a week’s pay for each full year of service where you were under 22
2. One week’s pay for each full year of service where you were between 22 and 40
3. One and a half week’s pay for each full year of service where you were 41 or older

The calculation is then subject to two important caps:

• Weekly pay cap: £643 (as of April 2024)
• Service cap: Maximum of 20 years’ service counts towards the calculation

Age Range	Multiplier	Maximum Weekly Pay (2024)	Maximum per Year
Under 22	0.5	£643	£321.50
22-40	1.0	£643	£643.00
41+	1.5	£643	£964.50

Example Redundancy Pay Calculations

Example 1: Employee aged 35 with 8 years service, earning £500/week

Calculation: 8 × £500 = £4,000

Since the weekly pay is below the £643 cap, no adjustment is needed.

Example 2: Employee aged 45 with 15 years service, earning £800/week

Calculation:

• First 2 years (under 22): 2 × £643 × 0.5 = £643
• Next 18 years (22-40): 18 × £643 × 1.0 = £11,574
• Final 5 years (41+): 5 × £643 × 1.5 = £4,822.50

Total: £643 + £11,574 + £4,822.50 = £17,039.50

What Other Payments Might You Receive?

In addition to statutory redundancy pay, you may be entitled to:

1. Notice pay: Payment for your notice period (whether you work it or not)
2. Holiday pay: Payment for any untaken holiday
3. Enhanced redundancy pay: Some employers offer more than the statutory minimum
4. Pension contributions: Any outstanding pension payments
5. Bonuses/commission: Pro-rata payments for the current period

Payment Type	Typical Amount	Tax Status	Legal Requirement
Statutory Redundancy	Up to £17,039.50 (max)	Tax-free up to £30,000	Yes (if eligible)
Notice Pay	1 week per year (min)	Taxable as earnings	Yes
Holiday Pay	5.6 weeks per year	Taxable as earnings	Yes
Enhanced Redundancy	Varies by employer	First £30k tax-free	No (contractual)

Is Redundancy Pay Taxable?

Statutory redundancy pay is tax-free up to £30,000. According to GOV.UK guidance, the first £30,000 of redundancy pay is not subject to income tax or National Insurance contributions. Any amount above £30,000 is taxable.

Other payments like notice pay and holiday pay are treated as earnings and are subject to normal tax and National Insurance deductions.

How to Claim Your Redundancy Pay

If your employer doesn’t pay you what you’re owed:

1. First try to resolve it informally with your employer
2. If that fails, raise a formal grievance
3. If still unresolved, you can make a claim to an employment tribunal
4. You must make your claim within 3 months of your employment ending

If your employer is insolvent and can’t pay, you can claim from the National Insurance Fund through the Redundancy Payments Service.

Common Redundancy Pay Mistakes to Avoid

Many employees miss out on money they’re entitled to because of these common mistakes:

• Not checking the calculation: Always verify your employer’s calculation using our calculator
• Forgetting about notice pay: You’re entitled to be paid for your notice period even if you don’t work it
• Not claiming holiday pay: You should be paid for any untaken holiday
• Missing the claim deadline: You only have 3 months to claim unpaid redundancy
• Accepting verbal agreements: Get everything in writing before you leave

Redundancy Pay vs Severance Pay

While often used interchangeably, there are technical differences:

• Redundancy pay is the legal minimum payment when your job no longer exists
• Severance pay is a broader term that can include additional payments beyond the legal minimum
• Severance packages often include benefits like extended health insurance, outplacement services, or additional cash payments

How to Negotiate a Better Redundancy Package

While statutory redundancy pay is fixed by law, you may be able to negotiate additional benefits:

1. Research: Find out what similar companies offer
2. Leverage your value: Highlight your contributions and skills
3. Consider non-cash benefits: Extended health insurance, career coaching, or equipment
4. Get professional advice: Consult an employment lawyer or union representative
5. Get it in writing: Any agreement should be documented in your settlement agreement

Redundancy Pay and Your Pension

Redundancy can affect your pension in several ways:

• You may be able to take your pension early (though this will reduce your payments)
• Some redundancy packages include pension top-ups
• You can transfer your pension to a new provider
• Check if your employer offers enhanced pension terms as part of redundancy

The Pensions Advisory Service offers free guidance on how redundancy affects your pension options.

Alternative Support When Made Redundant

Beyond financial compensation, consider these resources:

• Jobcentre Plus: Help with finding new employment
• Citizens Advice: Free legal and practical advice
• Union support: If you’re a union member
• Retraining programs: Government-funded courses
• Mental health support: Redundancy can be stressful – don’t neglect your wellbeing

Frequently Asked Questions About Redundancy Pay

Can I be made redundant while on furlough?

Yes, employees can be made redundant while on furlough. Your redundancy pay should be based on your normal wages, not your furlough pay (which is typically 80% of normal wages).

What if I’m made redundant while on maternity leave?

If you’re made redundant during maternity leave, you’re entitled to:

• Your full statutory redundancy pay
• Any enhanced redundancy package
• Payment for any untaken holiday
• Your normal notice period (or payment in lieu)

Your employer cannot make you redundant because of your pregnancy or maternity leave – this would be automatic unfair dismissal.

How long does it take to receive redundancy pay?

Your redundancy pay should be included in your final wage payment. If not, it should be paid as soon as possible after your employment ends. If payment is delayed, you’re entitled to interest on the unpaid amount.

Can I claim benefits while receiving redundancy pay?

Yes, but redundancy pay may affect your eligibility for means-tested benefits. The first £30,000 is tax-free but may still be considered as capital for benefit calculations. You should inform Jobcentre Plus about any redundancy payment when making a benefits claim.

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

If your employer is insolvent and cannot pay your redundancy, you can claim from the National Insurance Fund. This is administered by the Redundancy Payments Service. You’ll need to provide:

• Your employment details
• Proof of insolvency (from the administrator)
• Details of what you’re owed

Final Checklist Before Accepting Redundancy

Before agreeing to any redundancy package:

1. ✅ Verify the statutory redundancy calculation using our calculator
2. ✅ Check you’re receiving payment for your full notice period
3. ✅ Confirm all untaken holiday will be paid
4. ✅ Understand the tax implications of your package
5. ✅ Get any enhanced terms in writing
6. ✅ Consider getting independent legal advice
7. ✅ Check how it affects your pension
8. ✅ Understand any restrictive covenants in your contract
9. ✅ Plan your next career steps