How Redundancy Pay Is Calculated

Statutory redundancy pay is calculated using a simple formula: your age band multiplier × years of service × your capped weekly pay. In the UK, you're entitled to this payment if your employer makes your position redundant after two years of service. The calculation depends on three factors: how old you are, how long you've worked there, and what you earn — with statutory limits applied. This guide walks you through the formula, shows how to work out your entitlement, and explains the tax rules that apply.

The Statutory Redundancy Pay Formula

Your redundancy entitlement is calculated as:

Age Band Multiplier × Years of Service × Capped Weekly Pay = Redundancy Payment

The multiplier changes depending on your age at the time of redundancy:

• Age 18–21: 0.5 week's pay per year of service
• Age 22–40: 1 week's pay per year of service
• Age 41+: 1.5 weeks' pay per year of service

You can claim redundancy pay if you've worked there for at least two years. The maximum redundancy entitlement is capped at 20 years of service (even if you've been there longer), and the weekly pay used in the calculation is capped at [STAT NEEDED: current weekly pay cap for 2026].

This is the statutory minimum — your employment contract or company policy may offer more (often called "enhanced" redundancy). If your contract promises better terms, you get the better figure.

How Age Multipliers Work

The age band multiplier is the most significant part of the calculation. An older worker with the same length of service receives roughly 3× the payment of a younger worker in the same role.

Picture this scenario: three employees made redundant after 20 years of service, all earning £30,000/year (roughly £577/week before the cap):

• Age 22: 0.5 × 20 = 10 weeks' pay
• Age 35: 1.0 × 20 = 20 weeks' pay
• Age 45: 1.5 × 20 = 30 weeks' pay

The age multiplier reflects the principle that older workers have fewer years to recover earnings and rebuild careers. It's not a reflection of job performance — it's baked into the law (as established in the Employment Rights Act 1996).

Important: the multiplier applies to years of complete service only. If you've worked there for 20 years and 8 months, you count 20 years. Months are rounded down.

Weekly Pay Cap and Length of Service

The weekly pay used in the calculation is capped by law. This cap changes annually (usually in April). [STAT NEEDED: insert current weekly pay cap for 2026 from Gov.uk].

Why a cap? Without it, a highly paid executive made redundant could receive an enormous sum. The cap ensures statutory redundancy is a social safety net, not a lottery-ticket payout for the highest earners.

Length of service is also capped at 20 years. If you've worked somewhere for 35 years, the formula uses 20 years, not 35. So the maximum statutory redundancy is:

1.5 × 20 × [weekly pay cap] = [maximum statutory redundancy payout]

You must have worked for your employer for at least two years to qualify for statutory redundancy at all. If you've been there 18 months, you're not entitled to statutory pay (though your employer may offer discretionary redundancy).

Tax Treatment of Redundancy Payments

This is where redundancy payments differ sharply from your regular salary: the first £30,000 is completely tax-free. Anything above £30,000 is taxable as income. This is a one-off allowance and can make a significant difference to your net payout.

Here's the breakdown:

• First £30,000: Tax-free. No income tax, no National Insurance.
• Above £30,000: Taxable at your marginal rate (20% basic, 40% higher, 45% additional).

Example: If you receive £50,000 redundancy:

• First £30,000: Tax-free
• Remaining £20,000: Taxed at your marginal rate

As a basic rate taxpayer, that's £4,000 in tax on the excess. Your net redundancy pay is £46,000.

This tax-free allowance applies once in your lifetime — or more precisely, once per redundancy event per employer. If you're made redundant twice by different employers, each gets the £30,000 allowance.

Important note: If your redundancy payment is large enough to push you into a higher tax band, only the amount above the threshold is taxed at the higher rate. For example, if you're a basic rate taxpayer earning £40,000 in the tax year and receive a £20,000 redundancy payment, the first £10,270 of redundancy goes into your personal allowance (tax-free), the next £10,230 is taxed at 20%, and only the top portion reaches the higher rate. The calculation is complex — if the payment is substantial, use a tax calculator or speak to a tax professional.

If you're concerned about how redundancy affects your overall financial picture, our guide on how pension contributions affect take-home pay explains the interplay between gross pay, tax, and net income. Redundancy is different (it's usually a one-off lump sum rather than ongoing salary), but the same principles apply.

Worked Examples

Example 1: 25-year-old, 5 years' service

Your employer makes your role redundant. You're 25 years old, you've worked there for 5 complete years, and your salary is £24,000/year (£462/week).

• Age band: 22–40 → 1 week's pay per year of service
• Calculation: 1 × 5 × £462 = £2,310
• Tax treatment: Entirely tax-free (well below £30,000)
• Your redundancy payment: £2,310

Example 2: 45-year-old, 15 years' service

You're 45, you've been at the firm for 15 years, and you earn £42,000/year (£808/week, but this may exceed the statutory cap).

Let's say the current weekly pay cap is £643/week:

• Age band: 41+ → 1.5 weeks' pay per year of service
• Calculation: 1.5 × 15 × £643 = £14,467
• Tax treatment: Entirely tax-free
• Your redundancy payment: £14,467

Example 3: 42-year-old, 18 years' service, higher salary

You're 42, at the company for 18 years, earning £65,000/year (£1,250/week, again capped).

Using £643/week cap:

• Age band: 41+ → 1.5 weeks' pay per year
• Calculation: 1.5 × 18 × £643 = £17,361
• Tax treatment: Entirely tax-free
• Your redundancy payment: £17,361

Note: Your actual weekly pay is £1,250, but the statutory cap limits the calculation to £643. This is why the cap matters most for higher earners — and why it's worth checking if your employer offers enhanced redundancy.

Example 4: 52-year-old, 22 years' service (capped at 20 years)

You're 52, been there 22 years (capped at 20), earning £58,000/year (£1,115/week, capped at £643).

• Age band: 41+ → 1.5 weeks' pay per year
• Calculation: 1.5 × 20 × £643 = £19,290 (20 years max)
• Tax treatment: Entirely tax-free
• Your redundancy payment: £19,290

Even though you've worked there 22 years, the formula only counts 20. The maximum statutory redundancy from the statutory formula alone is roughly 1.5 × 20 × cap = about £19,290.

If you earned higher pay, the statutory cap would have capped your weekly pay figure. If your employer offers "enhanced" redundancy, they might use your actual weekly pay instead of the statutory cap — always check your contract.

Frequently Asked Questions

Q: Do I get statutory redundancy if I've worked somewhere for only 1 year?

A: No. You must have at least two complete years of service to qualify for statutory redundancy. If you're made redundant after 18 months or 23 months, you're not entitled to statutory pay. Your employer may offer discretionary redundancy, but they're not legally required to.

Q: How is "length of service" calculated?

A: It's years of continuous employment. If you've taken unpaid leave, been on furlough, or on maternity/paternity leave, those periods usually count toward your service. If you've had a break in employment (left and came back), the clock resets — only the continuous service since you last started counts.

For part-time workers, the calculation is pro-rated (you count the weeks worked), similar to how holiday pay for part-time workers is calculated. For specific edge cases, consult ACAS.

Q: What if I'm over 65 or past retirement age?

A: You're still entitled to statutory redundancy if you meet the two-year service requirement and you're under the statutory age limit. However, employment law is complex around retirement — if you're within a few years of your State Pension age, different rules may apply. Consult ACAS or a legal advisor.

Q: Is redundancy pay considered income for benefits like Universal Credit?

A: Redundancy pay can affect means-tested benefits. The first £30,000 may be treated as capital rather than income, but it depends on your circumstances and the benefits you claim. The key point is that you should declare it to the relevant authorities. [STAT NEEDED: current Universal Credit treatment rules].

Q: Can my employer deduct tax or National Insurance from my redundancy payment upfront?

A: Yes, if the payment exceeds £30,000, your employer will usually withhold income tax on the amount above £30,000. You'll receive a P45, which you should keep for your tax records. If you're unsure whether the right amount has been withheld, ask your payroll team or contact HMRC.

Q: What's the difference between statutory and "enhanced" redundancy?

A: Statutory redundancy is the legal minimum — what we've calculated above. Enhanced redundancy is anything above that, offered by the employer at their discretion. An employer might offer 2 weeks' pay per year of service instead of 1.5, or might not apply the weekly pay cap. Always check your contract or redundancy letter to see which applies — enhanced packages can be worth significantly more.

Q: Do I owe income tax on redundancy pay?

A: The first £30,000 is tax-free. Anything above that is taxable at your marginal rate (20%, 40%, or 45% depending on your income). If your redundancy payment is large, work with a tax professional to model the tax impact and avoid nasty surprises on a self-assessment return.

Q: If I'm made redundant, can I claim unemployment benefits as well as redundancy pay?

A: Yes. Receiving redundancy pay doesn't disqualify you from unemployment support (though it may affect means-tested benefits like Universal Credit for the period you're receiving it). You should register with the Department of Work and Pensions as soon as possible after redundancy. Redundancy pay is separate from state support — you can claim both.

Calculating Your Redundancy Entitlement

The formula is straightforward once you know your age band, years of service, and capped weekly pay. If your employer has offered redundancy or you're worried about a potential round of job losses, work through the calculation above with your own figures.

Some employers offer enhanced redundancy that goes well beyond the statutory formula — check your employment contract for any mention of "redundancy", "termination", or "severance" clauses. If you're in a union, they may negotiate enhanced packages in a collective redundancy event.

For more on UK employment pay rights, see our guides on holiday pay entitlement, overtime pay, and maternity pay. Understanding the different components of pay — what you earn, what you're entitled to when you leave, and what happens to it tax-wise — helps you plan ahead.

For official guidance, see Gov.uk's statutory redundancy pay information. If you have questions about your specific situation, ACAS provides free, impartial advice on all employment matters.