Redundancy tends to arrive with a sense of urgency. A role disappears, a restructure is announced, a fixed-term contract is not renewed. In the middle of that, business owners often find themselves working out on the spot what they are legally required to pay.
Statutory redundancy pay is more formulaic than it might appear. Once you understand the rules, the calculation is straightforward. Here is what you need to know.
The qualifying conditions
Not every employee is automatically entitled to statutory redundancy pay. To qualify, someone must meet all of the following conditions:
- They must be an employee — not a genuine contractor, freelancer or agency worker
- They must have at least two years’ continuous service with you
- They must have been dismissed because of redundancy — that is, because the role is no longer needed, not because of performance, conduct or any other reason
- They must not have unreasonably refused a suitable alternative role you offered them
The two-year qualifying period is the one that most often catches employers out. It is two complete years of continuous service, counting backwards from the relevant date — usually the date employment ends. Part-years do not count towards the calculation.
Fixed-term and part-time employees have the same rights as permanent and full-time staff. If a fixed-term contract of two years or more is not renewed because the role is no longer needed, that is a redundancy and the employee is entitled to a payment.
What counts as continuous service?
Continuous service is not broken by ordinary absences. Maternity leave, paternity leave, sick leave, and other statutory family leave all count towards service. Annual leave counts. Temporary lay-offs do not break continuity in most circumstances.
Where a business is transferred under TUPE regulations, the employee’s service carries over to the new employer. If someone joined you as part of a business acquisition, their pre-transfer service counts towards their redundancy entitlement.
How statutory redundancy pay is calculated
Statutory redundancy pay is based on three things: the employee’s age, their length of service, and their weekly pay. The calculation applies age-related multipliers to each complete year of service:
- For each full year of service under the age of 22: half a week’s pay
- For each full year of service aged 22 to 40: one week’s pay
- For each full year of service aged 41 or over: one and a half weeks’ pay
The calculation uses the employee’s age during each year of service, not just their current age. An employee made redundant at 43 who has been with you for ten years will have their entitlement calculated year by year, with different multipliers applying to the years they were under 22, between 22 and 40, and over 41.
Service is capped at 20 years. Even if someone has worked for you for 25 years, only the most recent 20 count.
The weekly pay cap
There is a statutory cap on the weekly pay used in the calculation. From 6 April 2026, this cap is £751 per week. If an employee earns more than £751 a week, you still use £751 for the purposes of the redundancy calculation. The maximum statutory redundancy payment from April 2026 is £22,530.
Weekly pay is normally calculated using the employee’s gross average weekly earnings over the 12 weeks before their redundancy notice. For employees with regular fixed pay, this is straightforward. For employees with variable pay — commission, overtime, fluctuating hours — you need to average the 12 weeks carefully. HMRC guidance confirms that guaranteed contractual overtime and contractual bonuses should be included.
A worked example
An employee is made redundant at age 45 with nine full years of service and gross weekly earnings of £600 (below the cap, so we use £600). In the calculation, four of their years were worked while they were aged 41 or over (1.5 weeks each = 6 weeks), and five years between ages 22 and 40 (1 week each = 5 weeks). Total: 11 weeks x £600 = £6,600 statutory redundancy pay.
How is statutory redundancy pay taxed?
Statutory redundancy pay is treated as a termination payment. The first £30,000 of genuine redundancy pay is free from income tax. For most employees receiving statutory minimum payments, the full amount will be well within that threshold and entirely tax-free.
It is important to keep redundancy pay clearly separated from other payments made on termination. Notice pay, payment in lieu of notice, accrued holiday pay and any contractual bonuses are taxable as normal earnings. Mixing them together creates compliance problems and can result in employees being taxed incorrectly.
Common mistakes employers make
- Forgetting that fixed-term employees qualify after two years
- Not accounting for TUPE service when calculating entitlement
- Using basic salary only and excluding variable pay that should be included in the weekly pay calculation
- Getting the age multiplier wrong by using the employee’s current age for all years rather than their age during each year
- Missing the relevant date — where payment in lieu of notice is given, the statutory notice period is added to the leaving date, which can push the employee into an additional year of service
- Failing to keep clear records of the calculation and the reasoning behind it
What if you cannot agree on the entitlement?
Employees have six months from their leaving date to make a tribunal claim for unpaid statutory redundancy pay. That deadline is strict and rarely extended. If you are unsure about the calculation, or if there is a dispute about whether the dismissal was genuinely a redundancy, taking advice early is far better than dealing with a tribunal claim later.
Need help getting the calculation right?
Redundancy calculations look straightforward in principle but have enough moving parts to go wrong. Lucas White Payroll Services can work through the figures with you, make sure the payment is processed correctly through payroll, and give you a clear record of how the entitlement was calculated. Get in touch if you need support.
