How To Calculate Redundancy Package

Calculate your statutory redundancy pay and understand your entitlements under UK employment law

Comprehensive Guide: How to Calculate Your Redundancy Package in the UK

Being made redundant can be a stressful experience, but understanding your entitlements can help you navigate this challenging time. This comprehensive guide explains how redundancy pay is calculated in the UK, what you’re legally entitled to, and how to ensure you receive everything you’re owed.

What is Redundancy Pay?

Redundancy pay is the money you receive from your employer when you’re made redundant. There are two main types:

• Statutory redundancy pay – The legal minimum your employer must pay you
• Contractual redundancy pay – Any additional amount your employer agrees to pay based on your contract

Who Qualifies for Statutory Redundancy Pay?

To qualify for statutory redundancy pay, you must:

1. Be an employee working under a contract of employment
2. Have worked for your employer for 2 years continuously
3. Have been dismissed because of redundancy (not for another reason)

You don’t qualify if you’re:

• Self-employed
• A crown servant or in the armed forces
• An apprentice (unless your contract says otherwise)

How Statutory Redundancy Pay is Calculated

The calculation for statutory redundancy pay is based on:

• Your age
• Your weekly pay (capped at £643 as of April 2024)
• Your length of continuous service (capped at 20 years)

Age	Years of Service	Weekly Pay Multiplier
Under 22	Each full year	0.5 week’s pay
22-40	Each full year	1 week’s pay
41+	Each full year	1.5 week’s pay

The maximum statutory redundancy pay you can get is £19,290 (as of 2024), even if you earn more than the weekly cap.

Example Calculation

Let’s say you’re 45 years old, have worked for your employer for 10 years and 3 months, and earn £800 per week:

1. Only full years count, so 10 years of service
2. Your weekly pay is capped at £643
3. For the first 2 years (under 41): 2 × 0.5 = 1 week’s pay
4. For the next 8 years (41+): 8 × 1.5 = 12 weeks’ pay
5. Total: 1 + 12 = 13 weeks’ pay
6. 13 × £643 = £8,359 statutory redundancy pay

Additional Payments You Might Receive

On top of statutory redundancy pay, you might also get:

1. Notice Period Pay

You’re entitled to either:

• Work your notice period (and get paid as normal)
• Get paid in lieu of notice (a lump sum instead of working)

Statutory minimum notice periods:

Length of Service	Minimum Notice Period
1 month to 2 years	1 week
2 to 12 years	1 week for each full year
12+ years	12 weeks

2. Holiday Pay

You should be paid for:

• Any untaken holiday from the current holiday year
• Any holiday you’ve accrued but not yet taken

3. Contractual Redundancy Pay

Check your contract – some employers offer more generous redundancy packages than the statutory minimum. This might be:

• A higher multiplier (e.g., 2 weeks’ pay per year of service)
• No cap on weekly pay
• Additional benefits like outplacement support

Tax on Redundancy Pay

The first £30,000 of redundancy pay is tax-free. Any amount above this is taxed as income. However:

• Statutory redundancy pay is always tax-free
• Contractual redundancy pay counts towards the £30,000 limit
• Holiday pay and pay in lieu of notice are taxed as normal earnings

What to Do If You’re Made Redundant

1. Check your entitlements – Use our calculator and review your contract
2. Get it in writing – Ask for a written statement showing how your redundancy pay was calculated
3. Consider your options – You might be able to appeal or ask for alternative employment
4. Check for other benefits – You might be entitled to Jobseeker’s Allowance or Universal Credit
5. Get advice – Contact Citizens Advice or ACAS if you’re unsure

Common Questions About Redundancy Pay

Can I be made redundant while on furlough?

Yes, you can still 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 government’s National Insurance Fund.

Can I get redundancy pay if I resign?

Generally no, unless you can prove you were forced to resign (constructive dismissal). This is complex – seek legal advice if you think this applies to you.

What if I’m offered another job with the same employer?

If you unreasonably refuse suitable alternative employment, you might lose your right to redundancy pay. The job must be suitable in terms of pay, status, hours, and location.

Your Rights During Redundancy

Even during redundancy, you have important rights:

• Consultation – Your employer must consult with you if 20+ redundancies are planned
• Time off – You’re entitled to reasonable time off to look for work or arrange training
• Fair selection – Redundancies must be fair and not discriminatory
• Appeal – You can appeal if you think the redundancy is unfair

Alternative to Redundancy

Before making redundancies, employers should consider alternatives:

• Reducing overtime
• Offering voluntary redundancy
• Temporary lay-offs or short-time working
• Retraining or redeployment
• Early retirement

What to Do With Your Redundancy Pay

Receiving a redundancy payment can provide financial breathing space. Consider these options:

1. Pay off debts – Especially high-interest debts like credit cards
2. Build an emergency fund – Aim for 3-6 months’ living expenses
3. Invest in retraining – Upskill for your next role
4. Top up your pension – Redundancy payments can often be paid into your pension tax-free
5. Invest wisely – Consider ISAs or other tax-efficient investments

Redundancy and Mental Health

Redundancy can be emotionally challenging. It’s normal to feel:

• Stressed or anxious about the future
• Angry or resentful towards your employer
• Loss of confidence or self-esteem
• Isolated from your work colleagues

If you’re struggling, consider:

• Talking to friends and family
• Contacting mental health charities like Mind
• Speaking to your GP if symptoms persist
• Joining support groups for people going through redundancy

Legal Support and Further Information

If you need legal advice about your redundancy:

• GOV.UK Redundancy Rights – Official government information
• ACAS Redundancy Guide – Comprehensive advice from the Advisory, Conciliation and Arbitration Service
• Citizens Advice Redundancy Help – Practical support and guidance

Remember, redundancy is not a reflection of your worth or abilities. With the right approach, it can be an opportunity to reassess your career goals and find a role that’s even more fulfilling.