Losing a job to redundancy is unsettling, but the law gives many employees a financial cushion in the form of a lump sum payment. Statutory redundancy pay is the minimum that eligible staff are entitled to when their role genuinely disappears. Knowing how it is calculated, who qualifies, and how it is taxed helps you check you are being treated fairly and plan for what comes next. This guide walks through the essentials. This is general information, not legal advice.
What it is
Statutory redundancy pay is the legal minimum lump sum an employer must pay an eligible employee who is made genuinely redundant. Redundancy has a specific meaning: it is when an employer needs fewer people to do work of a particular kind, for example because a workplace is closing or a role is no longer needed. It is not the same as being dismissed for performance or conduct.
Because the payment is statutory, it comes from the law and applies regardless of what an employer might prefer. It is a one-off lump sum rather than ongoing pay, and it is intended to recognise your loss of a job and the service you have given.
Many employers offer enhanced or contractual redundancy pay that is more generous than the statutory minimum. Where that exists it should be set out in your contract or a redundancy policy, but it can never lawfully be less than the statutory amount for those who qualify.
Statutory redundancy pay rewards length of service and is tied to a genuine redundancy. If a "redundancy" is really a dismissal in disguise, different rights — and potentially a tribunal claim — can come into play.
Who qualifies
To be entitled to statutory redundancy pay you generally need to:
- Be classed as an employee (not, for example, a genuinely self-employed contractor).
- Have at least a minimum period of continuous service with your employer, commonly two years.
- Be made redundant in the proper sense, rather than dismissed for another reason or resigning.
There are situations where entitlement can be lost. If you unreasonably refuse a suitable alternative job offered by your employer, you may lose your right to a redundancy payment. Equally, if a redundancy is not genuine, or the process is unfair, you may have other claims instead. The line between a fair and an unfair redundancy can be subtle, which is why free guidance from Acas is so useful when you are going through one.
If your employer becomes insolvent and cannot pay, you are not necessarily left with nothing — you may be able to claim certain payments, including statutory redundancy pay, from a government scheme. GOV.UK explains how that works.
How it is calculated
The statutory amount is worked out using a formula based on three things, each with a limit:
- Your age during each year of service, which weights how much you get for that year.
- Your length of continuous service, usually capped at a maximum number of years.
- Your weekly pay, capped at a maximum amount.
Broadly, you receive a set number of weeks' pay for each full year of service, with older years of service earning slightly more and younger years slightly less. Both the weekly pay cap and the maximum number of years are set by the government and change over time, so the current limits should be checked on GOV.UK. There is an official redundancy pay calculator that does the sums for you once you enter your details.
| Factor | Effect on the payment |
|---|---|
| Age during each year of service | Weights the number of weeks' pay |
| Years of continuous service | More service generally means more pay, up to a cap |
| Weekly pay | Used in the sum, but capped at a maximum |
Because the calculation rewards service, longer-serving employees tend to receive considerably more. If your actual weekly pay is above the cap, the calculation uses the capped figure, which is why high earners can find the statutory amount lower than they expected — another reason to check whether your employer offers an enhanced scheme.
Tax and other payments
A welcome feature of redundancy is that genuine redundancy payments are usually tax-free up to a limit. That can make a meaningful difference to what you actually take home. However, not everything bundled into a redundancy package is treated the same way:
- Genuine redundancy pay — usually tax-free up to the limit.
- Pay in lieu of notice, holiday pay and outstanding wages — normally taxed as earnings.
- Anything above the tax-free limit — generally taxable.
Because the boundary between tax-free and taxable elements can be technical, it is worth checking the detail on GOV.UK, and taking advice for larger settlements. Understanding how the taxable parts interact with your wider income links closely to understanding tax codes, since a one-off payment can affect the tax deducted in that period. When you leave, you should also receive a P45 showing your pay and tax for the year, which matters for your next job or any tax refund.
A redundancy lump sum can be a chance to steady your finances. Putting some aside is exactly the thinking behind building an emergency fund, and revisiting a budget that works helps the money last while you look for your next role.
The bottom line
Statutory redundancy pay is the legal minimum lump sum for eligible employees made genuinely redundant, based on your age, length of continuous service and weekly pay, each subject to caps. You usually need at least two years' service to qualify, much of a genuine redundancy payment is tax-free up to a limit, and many employers pay more through enhanced schemes. If you are facing redundancy, check the current limits on GOV.UK, use the official calculator, and get free advice from Acas or Citizens Advice if anything seems unfair.