Quick Answer: How is Redundancy Pay Calculated?
Statutory redundancy pay is calculated based on three factors:
- Age — determines the multiplier per year of service
- Length of service — capped at 20 years
- Weekly pay — capped at £719 for 2026/27
Age Band Formula
| Age at Date of Redundancy | Pay Per Year of Service |
|---|---|
| Under 22 | 0.5 week's pay |
| 22–40 | 1 week's pay |
| 41 and over | 1.5 weeks' pay |
Maximum statutory redundancy pay: £21,570 (20 years × 1.5 × £719)
Use our redundancy pay calculator for instant calculations.
Who Qualifies for Statutory Redundancy Pay?
To qualify, an employee must:
- Be an employee (not a worker or contractor)
- Have at least 2 years' continuous service
- Be genuinely redundant (role is disappearing, not just being replaced)
Employees Who Do Not Qualify
| Situation | Entitlement |
|---|---|
| Less than 2 years' service | No statutory redundancy pay |
| Unreasonably refused suitable alternative employment | May lose entitlement |
| Dismissed for misconduct during notice period | May lose entitlement |
| Fixed-term contract expired (with redundancy clause) | May qualify |
Worked Examples
Example 1: Employee aged 35, 8 years' service, earning £600/week
All 8 years fall in the 22–40 age band:
- 8 years × 1 week's pay × £600 = £4,800
Example 2: Employee aged 47, 12 years' service, earning £800/week
Weekly pay is capped at £719.
- Years aged 41–47 (6 years): 6 × 1.5 × £719 = £6,471
- Years aged 35–40 (6 years): 6 × 1 × £719 = £4,314
- Total: £10,785
Example 3: Employee aged 52, 22 years' service, earning £500/week
Service is capped at 20 years:
- Years aged 41–52 (11 years, capped at what fits in 20): 11 × 1.5 × £500 = £8,250
- Years aged 32–40 (9 years): 9 × 1 × £500 = £4,500
- Total: £12,750
Enhanced Redundancy Pay
Many employers offer enhanced redundancy pay above the statutory minimum. Common approaches include:
| Enhancement Type | Example |
|---|---|
| Multiplier enhancement | 2× the statutory formula |
| Uncapped weekly pay | Use actual salary instead of £719 cap |
| Additional service credit | Count all service (not capped at 20 years) |
| Flat-rate top-up | Statutory + fixed lump sum |
Contractual vs Discretionary
- Contractual enhanced redundancy: Written into the employment contract. The employer is legally bound to pay it.
- Discretionary enhanced redundancy: Offered at the employer's choice. Be careful — if you have always paid it, it may become an implied contractual term.
Tax Treatment of Redundancy Pay
| Payment Type | Tax Treatment |
|---|---|
| Statutory redundancy pay | Tax-free |
| Enhanced redundancy pay (first £30,000) | Tax-free |
| Amounts above £30,000 | Subject to income tax (not NI) |
| Payment in lieu of notice (PILON) | Subject to income tax and NI |
| Holiday pay on termination | Subject to income tax and NI |
The £30,000 tax-free allowance covers both statutory and enhanced redundancy pay combined.
Consultation Requirements
Individual Consultation
For all redundancies, employers must:
- Explain why redundancy is necessary
- Discuss selection criteria
- Consider alternatives to redundancy
- Allow the employee to respond and suggest alternatives
- Consider responses genuinely
Collective Consultation
When proposing 20 or more redundancies at one establishment within 90 days, additional obligations apply:
| Number of Proposed Redundancies | Minimum Consultation Period |
|---|---|
| 20–99 employees | 30 days before first dismissal |
| 100+ employees | 45 days before first dismissal |
Collective redundancy consultation requires notifying the Secretary of State (via HR1 form) and consulting with employee representatives or trade unions.
Selection Criteria
Redundancy selection must be fair, objective, and non-discriminatory. Commonly used criteria include:
- Skills, qualifications, and experience
- Performance records and appraisals
- Attendance record (excluding protected absences)
- Disciplinary record
- Length of service (but this alone may be age-discriminatory)
Avoid: "Last in, first out" as a sole criterion — this can constitute indirect age discrimination.
The Redundancy Process: Step by Step
- Establish genuine redundancy situation — business case documented
- Define the pool — which roles are at risk
- Agree selection criteria — objective, measurable, non-discriminatory
- Consult individually — meaningful consultation with each affected employee
- Apply selection criteria — score and rank employees
- Consider alternatives — suitable alternative employment within the organisation
- Give notice — statutory or contractual notice
- Calculate redundancy pay — statutory + any enhanced terms
- Provide written statement — detailing how the payment was calculated
- Support the transition — outplacement support, references
Managing Redundancy with Grove
Grove helps manage the redundancy process:
- Redundancy pay calculator with age-band automation
- Service length tracking from employee records
- Notice period management linked to contracts
- Document generation for consultation letters and payment breakdowns
Use our free redundancy pay calculator or get started with Grove.
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The Grove Team
Grove HR
The Grove Team writes about HR best practices, compliance, and workplace culture for Grove. Helping UK businesses cultivate thriving teams.
