Employment

Redundancy Pay: How Much You're Actually Owed (And What They Don't Want You to Know)

Getting made redundant is rubbish. There's no way around that. But in the middle of the stress and uncertainty, you need to know one thing: what are you actually entitled to?

Because here's the thing — a lot of people accept whatever they're offered without checking if it's correct. And sometimes it isn't.

I remember when my mate Dave got called into a meeting room last year. He'd been at the company for nine years, knew something was up when they started "restructuring" his department. They handed him a number, said it was "very generous," and asked him to sign within a week.

Dave nearly did. Then he actually ran the calculations. Turned out they'd "forgotten" to include his service from before the company merger. That "generous" offer was £3,000 short of what he was legally owed.

He pushed back. They paid up. But if he hadn't checked? That money would've just... disappeared.

Do You Even Qualify?

First, the bad news. Not everyone gets statutory redundancy pay. You need:

  • At least 2 years of continuous service with the same employer
  • To be an actual employee (not self-employed or a contractor)
  • To be genuinely redundant (not fired for something else)

If you've been there less than two years, you get nothing from the statutory scheme. Your employer might offer something anyway, but they don't have to.

The "continuous service" bit trips people up. If you had a gap in employment — even a short one — it might reset the clock. But if you were transferred under TUPE (when one company takes over another), your service usually carries over. This is exactly what happened with Dave — his pre-merger service counted, even though the company tried to pretend it didn't.

Also worth knowing: agency workers and zero-hours contract workers can qualify too, if they meet the criteria. The employment status matters more than the contract type.

The Formula (It's Not That Complicated)

Statutory redundancy pay depends on three things: your age, how long you've worked there, and your weekly pay. For each complete year of service:

  • Under 22: Half a week's pay
  • 22 to 40: One week's pay
  • 41 and over: One and a half weeks' pay

But there are caps:

  • Weekly pay is capped at £700 (as of 2025/26)
  • Maximum 20 years of service counts
  • Maximum payout: £21,000

The age bands work backwards from your redundancy date. So if you're 45 now and started at 35, you count your years at each age bracket. It's a bit fiddly, but the principle is straightforward: older workers get more per year because they're assumed to have a harder time finding new employment.

One thing that catches people out: it's complete years only. If you've been there 4 years and 11 months, you get paid for 4 years. That extra 11 months? Doesn't count. Harsh, but that's how it works.

Let's Do Some Real Numbers

Sarah, 45, worked there 12 years, earns £600/week — She needs to work backwards through her employment:

  • Ages 41-45 (5 years): 5 × 1.5 = 7.5 weeks
  • Ages 33-40 (7 years): 7 × 1 = 7 weeks
  • Total: 14.5 weeks × £600 = £8,700

Marcus, 35, worked there 8 years, earns £900/week — His weekly pay gets capped at £700:

  • All years at 22-40: 8 × 1 = 8 weeks
  • Total: 8 × £700 = £5,600

Notice how Marcus earns more but gets less? That cap hurts higher earners.

Young graduate, 24, worked there 3 years, earns £500/week

  • Ages 22-24 (2 years): 2 × 1 = 2 weeks
  • Under 22 (1 year): 1 × 0.5 = 0.5 weeks
  • Total: 2.5 × £500 = £1,250

Long-serving employee, 55, worked there 25 years, earns £800/week — Only 20 years count (the cap):

  • Ages 41-55 (14 years): 14 × 1.5 = 21 weeks
  • Ages 35-40 (6 years): 6 × 1 = 6 weeks
  • Total: 27 weeks × £700 (capped) = £18,900

Even with 25 years of service, the caps limit the payout. It's not nothing, but it's not exactly a golden handshake either.

Enhanced Redundancy: The Good Stuff

Here's where it gets interesting. Many employers offer more than the statutory minimum. This is called enhanced redundancy, and it can be significantly better. Common enhancements:

  • No cap on weekly pay (your actual salary counts)
  • More weeks per year of service (2 weeks instead of 1)
  • No 20-year limit
  • Extra lump sums

I've seen enhanced packages worth three or four times the statutory amount. Always ask what your company's policy is before assuming you're stuck with the minimum.

The public sector tends to be more generous here. Local councils, NHS trusts, universities — they often have enhanced schemes that have been negotiated over years. Private sector varies wildly. Some big corporates have decent schemes; many SMEs offer statutory only.

The Process Matters

Your employer can't just hand you a box and tell you to leave. There's a legal process:

They must consult with you. Even if you're the only one being made redundant, they need to discuss it with you, explain why, and consider alternatives.

If 20+ people are going: Minimum 30 days consultation. Over 100 people? 45 days.

Selection must be fair. If they're choosing between employees, they need objective criteria. "We just don't like Dave" isn't valid. Skills, performance, attendance records — these are legitimate factors.

They should look for alternatives. Could you be redeployed? Would you accept reduced hours? They should at least consider these options.

If they skip these steps, you might have a claim for unfair dismissal on top of your redundancy pay.

What About Tax?

Good news: the first £30,000 of redundancy pay is tax-free. This includes:

  • Statutory redundancy
  • Enhanced redundancy
  • Any ex-gratia payments

What IS taxed:

  • Pay in lieu of notice (PILON)
  • Outstanding holiday pay
  • Bonuses
  • Anything over £30,000

So if you get £25,000 redundancy plus £5,000 PILON, the redundancy is tax-free but the PILON gets taxed normally.

Don't Forget the Other Stuff

Redundancy pay isn't the only thing you're owed:

Notice period — Either work it or get paid in lieu. Statutory minimum is one week per year of service (up to 12 weeks), but your contract might say more.

Outstanding holiday — Any accrued but untaken holiday gets paid out.

Time off to job hunt — If you've got 2+ years service, you're entitled to reasonable paid time off to look for work or arrange training.

Your pension — Contributions continue until your last day. Get information about your options.

Bonus and commission — If you've earned it, you should get it. Check your contract for the exact terms.

When to Push Back

If something feels wrong, it might be. Red flags include:

  • Being selected for redundancy when others with less experience/worse performance aren't
  • No consultation at all
  • Being pressured to sign things quickly
  • The numbers not adding up
  • Being told your role is redundant, then seeing it advertised a month later
  • Selection criteria that seem designed to target you specifically

You can appeal the decision through your employer's process. If that doesn't work, ACAS offers free advice, and employment tribunals exist for a reason.

The time limits matter here. You have three months minus one day from your dismissal date to bring an employment tribunal claim. If you think something's wrong, get advice early.

Settlement Agreements: Read Before You Sign

If your employer offers you more than statutory redundancy, they'll probably ask you to sign a settlement agreement. This is a legal document where you agree not to bring any claims against them in exchange for the enhanced payment. Key things to check:

  • What claims are you giving up?
  • Is the payment genuinely better than what you'd get anyway?
  • Are there any restrictive covenants (non-compete clauses)?
  • What will they say in references?

By law, you must get independent legal advice before signing a settlement agreement. Your employer usually pays for this — typically £250-500 plus VAT. Use it.

The Honest Truth

Redundancy is never fun, but it doesn't have to be a disaster. Know what you're entitled to, check the calculations, and don't be afraid to ask questions.

And if they're offering you a settlement agreement with enhanced terms? Get it checked by a lawyer before you sign.

Don't leave money on the table because you were too stressed or embarrassed to check the numbers. This is your money. You earned it through years of service. Make sure you get every penny.

Related Calculators

Check your entitlement with these tools:

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