Employees with at least two years' continuous service are entitled to statutory redundancy pay when made redundant. The calculation is based on a formula using the employee's age, length of service, and weekly pay — with the weekly pay figure subject to a statutory cap that is updated annually.
The Formula
For each complete year of continuous service (up to a maximum of 20 years):
- Under 22 years old: half a week's pay per year
- 22 to 40 years old: one week's pay per year
- 41 years and over: one and a half weeks' pay per year
The weekly pay figure is capped (the cap is updated each April — check the current figure on GOV.UK). Service is counted backwards from the date of dismissal, and only complete years count.
Example Calculation
An employee aged 45 with 10 years' service and a weekly pay of £600 (above the cap):
- Years aged 41-45: 5 years × 1.5 weeks = 7.5 weeks
- Years aged 22-40: 5 years × 1 week = 5 weeks
- Total: 12.5 weeks × capped weekly pay
The maximum statutory redundancy pay is 30 weeks' pay at the capped rate (20 years × 1.5 weeks).
What Counts as a Week's Pay?
For employees with fixed hours and pay, a week's pay is the gross amount they receive each week. For employees with variable hours, an average is calculated over the 12-week period ending on the calculation date. Commission and regular overtime may be included depending on the contractual terms.
Enhanced Redundancy Pay
Many employers offer enhanced redundancy packages above the statutory minimum. If your contract or policy provides for enhanced redundancy pay, you are bound by those terms. Enhanced packages often use a higher weekly pay figure (uncapped) or a higher multiplier.
Tax Treatment
Statutory and enhanced redundancy payments up to £30,000 are tax-free. Any amount above £30,000 is subject to income tax and employer National Insurance contributions. Note that notice pay (whether worked or paid in lieu) is always taxable.
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