How this is calculated
Statutory redundancy pay is worked out by counting back through each complete year of service, awarding 1.5 weeks' pay for each year worked at age 41 or over, 1 week's pay for each year between 22 and 40, and half a week's pay for each year under 22, up to a maximum of 20 years' service. Weekly pay used in the calculation is capped at a statutory limit reviewed annually by the government, shown here as unconfirmed for 2026/27, so always check the current published figure before relying on this for a final settlement.
Only employees with at least two years' continuous service qualify for statutory redundancy pay at all, and the calculation must use the employee's actual age and years of service as at the date their employment ends, not the date notice was given.
Statutory versus contractual redundancy pay
Many employers offer enhanced or contractual redundancy schemes that pay more generously than the statutory minimum, often uncapped by the weekly pay limit, and these should be checked against the employment contract or staff handbook rather than relying on the statutory calculation alone. Whatever the source, the first £30,000 of a genuine redundancy payment, including both statutory and any enhanced element, benefits from an income tax exemption, though employer National Insurance can still apply to amounts above £30,000 under current rules.
Payments in lieu of notice, holiday pay owed, and any bonus due are separate from the redundancy payment itself and are taxed as normal employment income in full, so should not be lumped in when assessing the £30,000 exemption.
Process points for employers
A redundancy must be genuine, meaning the role itself has ceased to exist, and a fair consultation process must be followed, particularly where 20 or more redundancies are proposed at one establishment, triggering collective consultation obligations. Getting the process wrong can expose the company to unfair dismissal claims regardless of whether the correct redundancy payment was calculated.
What this means for your company
Treat the result as a planning figure for the 2026/27 tax year. If it changes what you were about to do, take a director's salary, a dividend, a large asset purchase or a filing decision, check it against your own accounts first. We can review the position with you and confirm the tax treatment before you commit.
Frequently asked questions
How many years' service do I need to qualify for statutory redundancy pay?
At least two complete years of continuous service with the same employer are required to qualify for statutory redundancy pay under current UK employment law.
Is redundancy pay tax-free?
The first £30,000 of a genuine redundancy payment is free of income tax. Amounts above £30,000 are taxed as employment income, and employer National Insurance can apply to the excess.
Is there a cap on weekly pay used in the calculation?
Yes, the government sets an annual cap on the weekly pay figure used for statutory redundancy calculations, reviewed each April; the figure used here should be checked against the latest confirmed rate for 2026/27.
Can an employer pay more than the statutory minimum?
Yes, many employers offer enhanced redundancy terms through contract or policy, which can be more generous than the statutory formula, though the £30,000 tax-free treatment applies to the payment as a whole, not separately to each element.