UK Redundancy Pay Calculator

How UK Statutory Redundancy Pay Works

Statutory redundancy pay is a legal entitlement under the Employment Rights Act 1996 — it is not a bonus, and your employer cannot simply refuse it if you qualify. You qualify if you have been continuously employed for at least two years and are being made redundant. The rules are straightforward once you understand the three age bands.

The formula multiplies your years of service by a weekly pay figure (capped at £643 from April 2024) and a multiplier that depends on your age during each year of service:

- Under 22: 0.5 week's pay per year of service
- Age 22 to 40: 1 week's pay per year of service
- Age 41 and over: 1.5 weeks' pay per year of service

The maximum number of years you can count is 20 — so even if you have worked for 30 years, only the most recent 20 count. And the weekly pay is capped at £643 regardless of your actual salary. This means the absolute maximum statutory payment anyone can receive is £19,290 (1.5 × £643 × 20 years).

One point that trips up a lot of employees: the weekly pay cap applies to gross weekly earnings, including any regular overtime or contractual bonuses. If your week's pay varies, HMRC uses an average over the 12 weeks before your redundancy notice. Employers must give you a written statement showing how they calculated the figure — if they do not, they are in breach of the Act and you can raise a grievance or bring a claim to the Employment Tribunal within 3 months of the payment date.

Redundancy Pay Calculation Examples

The maths is easier to follow with real numbers. Here are three worked examples covering different ages and service lengths.

Example 1 — Young employee, short service
Sarah is 25 years old and has worked for her employer for 5 years. Her weekly pay is £500 (below the cap).
- Years aged 22–25: 3 years × 1 week × £500 = £1,500
- Years aged under 22: 2 years × 0.5 week × £500 = £500
- Total: £2,000

Example 2 — Mid-career, longer service
Mark is 35 with 10 years of service. His weekly pay is £600.
- All 10 years fall in the age 22–40 band: 10 × 1 week × £600 = £6,000
- Total: £6,000

Example 3 — Older employee approaching the maximum
Caroline is 50 with 15 years of continuous employment. Her weekly pay is £900, but the cap applies at £643.
- Years aged 41–50: 9 years × 1.5 weeks × £643 = £8,681
- Years aged 40–41: 1 year × 1 week × £643 = £643
- Years aged 35–40: 5 years × 1 week × £643 = £3,215
- Total: £12,539

Notice how the age-41-plus multiplier makes a material difference for older workers. If Caroline were 52 with 20 years instead, she would hit close to the maximum £19,290. Always use the age you were during each year of service, not your age at redundancy — HMRC is explicit about this.

Enhanced Redundancy and Negotiation

Statutory redundancy pay is a floor, not a ceiling. Many employers — particularly large corporates and public sector organisations — pay enhanced redundancy under company policy or collective agreements. Common enhanced multipliers range from 1.5× to 3× the statutory amount, and some schemes remove the weekly pay cap entirely, paying based on your actual uncapped salary.

If your contract or staff handbook mentions an enhanced scheme, that is a contractual entitlement and cannot be unilaterally removed. If it is discretionary ("the company may at its discretion pay enhanced redundancy"), you have less leverage — but discretion cannot be exercised irrationally.

Negotiating beyond the contractual terms is possible. Useful pressure points include: your length of service, the disruption to your career, whether the redundancy selection process could be challenged, and the strength of your internal knowledge. Employers often prefer a clean exit to an Employment Tribunal claim.

Always get any offer above statutory amounts in a formal settlement agreement (compromise agreement). These are legally binding contracts where you waive certain employment rights in exchange for a payment. You must receive independent legal advice before signing — your employer should contribute to your legal fees (typically £200–£500). Do not sign under pressure or within a few days of being made redundant; you are entitled to time to consider.

Redundancy Pay Tax Rules

The tax treatment of redundancy pay catches many people off guard, so it is worth being clear.

The first £30,000 of a genuine redundancy payment is entirely free of income tax and National Insurance. This applies to the statutory amount and any enhanced redundancy payment that qualifies as a genuine ex gratia payment. It does not apply to money you were contractually owed as part of normal employment.

Above £30,000, the excess is added to your other income for the tax year and taxed at your marginal rate — 20%, 40%, or 45% depending on your total earnings. National Insurance is due on amounts above £30,000 from April 2023 at your employee rate.

There are important exceptions to the £30,000 exemption:

- Pay in lieu of notice (PILON): If your contract contains a PILON clause, the payment is taxable as earnings — it does not benefit from the £30,000 exemption. Even without a contractual PILON clause, post-employment notice pay (PENP) rules introduced in 2018 mean a portion of any settlement may be treated as taxable notice pay.
- Holiday pay: Any accrued but untaken holiday pay is always taxable as earnings, regardless of the redundancy context.
- Non-cash benefits: Company cars retained during a notice period have a taxable benefit in kind value.

If your package involves a significant sum above £30,000, it may be worth taking specialist tax advice before accepting — timing a payment across two tax years can sometimes reduce the effective rate.