Statutory Redundancy Pay Guide

Making redundancies is one of the hardest decisions a business can face. Alongside handling the process fairly, it’s important to meet your legal obligations around redundancy pay. Getting it wrong can lead to costly disputes and tribunal claims.

We’ll walk you through what statutory redundancy pay is, who qualifies, how it’s calculated and what you need to do to stay compliant. It also covers common mistakes, tax considerations and frequently asked questions so you can feel confident managing redundancy payments in line with UK law.

What is statutory redundancy pay?

Statutory redundancy pay is the minimum amount an employer must provide to eligible employees who are made redundant. It is a legal obligation under UK employment law and acts as a financial cushion when a role is no longer required.

Eligibility is based on age and continuous service. Employees must have worked for their employer for at least two years to qualify. The exact amount depends on their age, length of service and weekly pay (up to the government’s set limit).

For personalised calculations, employers and employees can use the UK government’s statutory redundancy pay calculator.

Who qualifies for statutory redundancy pay in the UK?

Not every employee will qualify for statutory redundancy pay. The law sets clear rules on who is entitled and failing to follow them can put employers at risk of non-compliance.

To be eligible, an employee must meet the following criteria:

• Length of service: The employee must have at least two years of continuous service with the same employer. Service includes time spent on statutory leave, such as maternity or parental leave.
• Reason for dismissal: The dismissal must be by reason of redundancy, not misconduct or resignation. If an employee is dismissed for gross misconduct, they are not entitled to redundancy pay.
• Type of contract: Both full-time and part-time employees are covered. Fixed-term employees may qualify if their contract is ended early because of redundancy. If a fixed-term contract ends naturally on its agreed date, redundancy pay is not usually due.
• Working arrangements: Employees on maternity leave, paternity leave, adoption leave or shared parental leave still retain the right to redundancy pay if they qualify by length of service.
• Age: There is no age restriction on entitlement, but age is a factor in how payments are calculated.

Who is not entitled?

Certain workers are not covered by statutory redundancy pay rules. These include:

• Self-employed contractors or agency workers.
• Members of the armed forces.
• Crown servants and police officers (as they have separate arrangements).
• Employees who refuse a suitable alternative role offered by their employer without a valid reason.
• Employees who have worked for less than two continuous years.

It is important for employers to assess eligibility carefully before making redundancy payments. Mistakes in this area are a common cause of disputes and can lead to claims through an employment tribunal.

How is statutory redundancy pay calculated?

Statutory redundancy pay follows a set formula based on age, length of service and weekly pay. Weekly pay is capped at a government-set maximum. For the 2025 tax year, the maximum weekly pay is £719.

The calculation is:

• Half a week’s pay for each full year under the age of 22.
• One week’s pay for each full year between ages 22 and 40.
• One and a half weeks’ pay for each full year over the age of 41.

Worked example

If an employee aged 45 has 10 years of continuous service and earns £600 per week:

• 5 years at one week per year = 5 weeks’ pay.
• 5 years at one and a half weeks per year = 7.5 weeks’ pay.
• Total = 12.5 weeks’ pay at £600 = £7,500.

Employers who are unsure of exact amounts should consider using payroll software or seeking advice from a payroll professional.

Is statutory redundancy pay taxable?

No. Redundancy payments of up to £30,000 are free from tax and National Insurance. This means statutory redundancy pay is not taxable in most cases.

If an employer offers enhanced redundancy pay or other termination payments that take the total over £30,000, the excess will be subject to tax.

How employers can stay compliant

Redundancy payments are a statutory right and employers must handle them correctly to avoid penalties or tribunal claims. Compliance is not just about paying the correct amount, but also about following proper processes, keeping accurate records and communicating clearly with employees.

Here are the key responsibilities for employers:

• Provide written details: Employees must receive a written statement explaining how their redundancy pay has been calculated. This should include their length of service, age band, weekly pay figure and the final amount due. A clear written breakdown helps prevent disputes.
• Pay on time: Redundancy pay should normally be made on or before the employee’s final day of employment. In some cases, employers may agree to pay shortly afterwards, but delaying payment without good reason can lead to claims in an employment tribunal.
• Keep accurate records: Employers should retain copies of redundancy calculations, letters and payment confirmations. Good record keeping supports HR compliance and helps defend the business if challenged later.
• Account for special circumstances: Employees on maternity leave, adoption leave or shared parental leave are still entitled to redundancy pay if they meet the service requirement. Employers must not overlook these cases.
• Communicate clearly: Redundancy is a sensitive process, so clear communication is essential. Written confirmation should outline not only the payment but also notice periods, last working day and any other entitlements. Employers can use our redundancy notice template to make sure they cover the essentials.
• Understand enhanced redundancy pay: Some employers choose to offer more than the statutory minimum, either as part of company policy or as a gesture of goodwill. While this is optional, it must be clearly identified as “enhanced” to avoid confusion with statutory obligations.
• Follow fair redundancy procedures: Even when the payment itself is correct, failing to follow a fair process can lead to unfair dismissal claims. Employers should ensure consultation, fair selection criteria and proper notice are in place. For more information, see our redundancy process guide.

Why compliance matters

Getting redundancy pay wrong can have serious consequences. Employers may face:

• Tribunal claims for unpaid redundancy pay.
• Compensation orders with interest added.
• Reputational damage for mishandling redundancies.
• Higher legal costs if disputes escalate.

Using HR compliance tools and payroll software can make it easier to calculate payments accurately, issue correct documentation and maintain compliance with UK employment law.

How does enhanced redundancy pay differ?

Enhanced redundancy pay is any additional amount an employer chooses to offer beyond the statutory minimum. This may be part of a company policy, a contractual agreement or a goodwill gesture.

It is important for employers to make a clear distinction between statutory redundancy pay (the legal minimum) and enhanced pay (the optional top-up).

Common mistakes employers make with redundancy pay

Errors in redundancy pay can lead to disputes and tribunal claims. Some of the most common mistakes include:

• Miscalculating length of service (for example, excluding part of a notice period).
• Failing to include part-time employees in redundancy pay calculations.
• Not issuing written confirmation of redundancy payments.
• Confusing statutory redundancy pay with enhanced package.

To avoid issues, employers can use our redundancy notice template.

Take the stress out of payroll compliance with Employment Hero

Redundancy is never easy, but handling statutory redundancy pay correctly is essential for staying compliant and supporting your employees through change. By understanding the rules, calculating payments accurately, and keeping clear records, you can reduce the risk of disputes and protect your business.

If you want to simplify payroll, automate calculations, and stay on top of compliance, Employment Hero’s payroll software can help. From managing redundancy pay to everyday payroll tasks, our tools give you accuracy, efficiency, and peace of mind.

Redundancy pay FAQs

Do part-time workers qualify for redundancy payments?

Yes. Part-time employees qualify for statutory redundancy pay as long as they meet the two-year continuous service requirement. Their redundancy pay is calculated in the same way as full-time workers, based on their actual weekly earnings. If an employee’s weekly pay varies, the redundancy pay is based on the average hourly rate over a 12-week period. 

Is redundancy pay the same for part-time employees?

The formula is the same, but the weekly pay figure is lower because it is based on the employee’s contracted hours.

Can we offer more than the statutory minimum?

Yes. Employers may choose to offer enhanced redundancy pay, but this should be made clear in the employee’s redundancy letter and contract terms.

What if an employee refuses an alternative role?

If an employee is offered a suitable alternative role and unreasonably refuses it, they may lose their right to statutory redundancy pay.

Can an employee waive redundancy pay?

Employees cannot usually waive their right to statutory redundancy pay. The exception is if they accept a settlement agreement, which must be signed with independent legal advice.

How soon must redundancy payments be made to employees?

Redundancy pay should be made on or soon after the employee’s final day of employment. If payment is late, employees can take the matter to an employment tribunal.