Redundancy Pay Explained
Compensation when your employer makes your role redundant. The first £30,000 of redundancy pay is tax-free. Statutory redundancy is based on your age, length of service and weekly pay.
What is Redundancy Pay?
Redundancy pay is compensation you receive when your employer terminates your role because the job no longer exists. You are entitled to statutory redundancy pay if you have worked for the employer for at least 2 years. Many employers also offer enhanced redundancy packages above the statutory minimum.
How it works
Statutory redundancy pay for 2025-26 is based on: half a week's pay for each year of service under age 22, one week's pay for each year aged 22-40, and one and a half week's pay for each year aged 41 and over. Weekly pay is capped at £700. Maximum service counted is 20 years. The maximum statutory payment is £21,000. The first £30,000 of any redundancy payment (statutory plus enhanced) is tax-free. Amounts above £30,000 are taxed as income and may also be subject to employer NI.
Real example
Sue is 45 with 15 years of service, earning £800/week (capped at £700 for statutory purposes). Her statutory entitlement: 5 years at 1.5 weeks (age 41-45) = 7.5 weeks. 10 years at 1 week (age 35-40) = 10 weeks. Total: 17.5 weeks x £700 = £12,250. Her employer offers an enhanced package of £40,000. The first £30,000 is tax-free. The remaining £10,000 is taxed at her marginal rate.
Who does this affect?
Employees with at least 2 years of continuous service with the same employer. The £30,000 tax-free threshold has not changed since 1988 and is not index-linked. Fixed-term contract workers who are not renewed are also entitled to redundancy pay if they meet the 2-year service requirement.
HMRC source
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