# What Is Statutory Redundancy Pay?

> Statutory redundancy pay is the minimum lump sum employers must give eligible staff made redundant. This guide explains who qualifies, how it is worked out, and your wider rights.

*Section: Personal Finance — By Rachel Stone (Personal Finance Editor) — Published February 28, 2024 — 5 min read*

Canonical URL: https://dailyjunction.org/business-finance/what-is-statutory-redundancy-pay
Tags: statutory redundancy pay, redundancy, employment rights, Acas, tax

## Key takeaways

- Statutory redundancy pay is the legal minimum lump sum for eligible employees made genuinely redundant.
- You usually need at least two years of continuous service to qualify for it.
- The amount depends on your age, length of service and weekly pay, with caps on each.
- A large part of redundancy pay is usually tax-free up to a limit, with rules on what counts.
- This is general information, not legal advice; check the rules on GOV.UK and Acas.

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:

1. Your **age** during each year of service, which weights how much you get for that year.
2. Your **length of continuous service**, usually capped at a maximum number of years.
3. 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](/business-finance/understanding-tax-codes-uk), since a one-off payment can affect the tax deducted in that period. When you leave, you should also receive a [P45](/business-finance/what-is-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](/business-finance/how-to-build-an-emergency-fund), and revisiting [a budget that works](/business-finance/how-to-make-a-budget) 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.

## Frequently asked questions

### What is statutory redundancy pay?

Statutory redundancy pay is the minimum lump sum an employer must pay an eligible employee who is made redundant. It is calculated from your age, length of continuous service and weekly pay, each subject to limits set by the government. This is general information, not legal advice.

### How much redundancy pay will I get?

The statutory amount is based on a set number of weeks' pay for each year of service, weighted by your age, with a cap on weekly pay and on the total. Many employers offer more through enhanced redundancy schemes, so check your contract as well as the statutory minimum on GOV.UK.

### Do I have to pay tax on redundancy pay?

Genuine redundancy payments are usually tax-free up to a limit, but elements such as pay in lieu of notice, holiday pay and normal wages are taxed as earnings. Because the rules are detailed, it is worth checking GOV.UK or taking advice for larger payments.

### When do I not qualify for statutory redundancy pay?

You may not qualify if you have under the minimum length of continuous service, if you are not an employee, or if you unreasonably turn down a suitable alternative job. If your employer is insolvent, you may still be able to claim from a government scheme.

## Sources

- [GOV.UK: Redundancy pay](https://www.gov.uk/redundancy-your-rights/redundancy-pay)
- [Acas](https://www.acas.org.uk/)
- [Citizens Advice](https://www.citizensadvice.org.uk/)

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