This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Detailed guide to how redundancy pay is calculated in England and Wales, explaining eligibility, the statutory formula based on age, service and weekly pay, statutory caps, payment timing, disputes and practical examples to help employees and employers understand their rights and obligations.
Redundancy pay is a financial entitlement for employees dismissed because their job is no longer needed. It compensates for the loss of employment and recognises length of service. In England and Wales, statutory redundancy pay is governed by the Employment Rights Act 1996 and accompanying regulations. This article explains how redundancy pay is calculated, who qualifies, what amounts employers must pay, how to work out the figures, and related legal considerations.
1. Who Qualifies for Statutory Redundancy Pay?
To receive statutory redundancy pay, a person must:
- Be classed as an employee working under a contract of employment.
- Have been made redundant, laid off, or put on short‑time working because their job ceased.
- Have at least two years' continuous service with the same employer at the date redundancy takes effect.
If the employer offers enhanced or contractual redundancy pay (above the legal minimum), entitlement may arise even with less than two years' service depending on the terms of the contract.
2. Legal Basis and Terminology
Statutory redundancy pay is a ‘basic award' under employment law. It is distinct from notice pay, holiday pay owed on termination, and any other contractual or discretionary payments an employer may offer. Redundancy pay:
- Is calculated on gross pay (before tax and National Insurance).
- Is tax‑free up to £30,000 under current UK tax rules (for genuine redundancy payments).
Employers are legally obliged to provide a written statement showing how redundancy pay was calculated. Failure to do so is an offence under section 165 of the Employment Rights Act 1996.
3. The Core Redundancy Pay Formula
The statutory calculation uses three main factors:
- Length of continuous service.
- Age at the time of redundancy.
- Average weekly pay.
The statutory formula applies different multipliers depending on age at each full year of service:
| Age when service accrued | Weeks' pay per year |
|---|---|
| Under 22 years | 0.5 week's pay |
| 22 to 40 years | 1 week's pay |
| 41 years and over | 1.5 weeks' pay |
To calculate the total statutory redundancy pay:
- Break down years of service into age bands.
- Multiply the number of years in each band by the appropriate weeks' pay.
- Add the totals for each band.
- Multiply the total weeks' pay by the average weekly pay (subject to statutory caps).
4. Average Weekly Pay
For redundancy pay, the employee's average weekly pay is usually the average earnings over the 12 weeks immediately before the notice was given. This includes:
- Basic pay.
- Regular overtime.
- Contractual commission or bonuses if terms require those to be included.
If weekly hours or pay vary, the calculation uses a 12‑week average. If pay does not vary regularly, the “normal weekly pay” figure may be used.
5. Statutory Caps
The law imposes upper limits to control the cost of redundancy pay:
- Weekly pay cap: For redundancies on or after 6 April 2025 the statutory weekly pay used in the calculation is capped at £719 (even if actual pay is higher).
- Service cap: Only the first 20 years of service can be counted.
- Total statutory redundancy pay: Maximum entitlement under statutory rules is £21,570 for payments assessed on or after 6 April 2025.
6. Worked Examples
Example 1 – Single age band:
Jane is 30 and has worked for six continuous years earning £500 per week:
- All six years fall in the 22–40 age band = 6 × 1 week's pay.
- 6 × £500 = £3,000 statutory redundancy pay.
Example 2 – Mixed age bands:
Mark is 50 and has 20 years' service, earning £600 per week (capped at £719):
- Years between 22–40: 18 years × 1 week = 18 weeks.
- Years over 41: 8 years × 1.5 weeks = 12 weeks.
- Total = 30 weeks' pay × £600 = £18,000 (using actual pay below the cap).
These figures are illustrative. Actual calculations may differ slightly if average weekly earnings vary.
7. Enhanced or Contractual Redundancy Pay
Some employers offer enhanced redundancy packages that exceed statutory minimums. These are usually set out in:
- Employment contracts.
- Company redundancy policies.
- Collective agreements.
Enhanced pay might count different service periods or apply higher weekly multipliers. It is important to review contract terms. Contractual entitlements prevail if they are more favourable than statutory rights.
8. Practical Matters and Legal Processes
Payment Timing
Redundancy pay should be made when employment ends or on the final pay date. Employers should clearly document the calculation.
Disputing a Redundancy Pay Calculation
If there is disagreement about entitlement or calculation:
- An employee may raise the issue informally with the employer.
- If unresolved, a claim can be brought to an employment tribunal for unlawful deduction from wages or related disputes.
Time limits apply: generally a claim must be presented within three months less one day from the date employment ends.
Notice Period and Redundancy
Notice pay and redundancy pay are separate. Statutory redundancy does not replace contractual or statutory notice pay, but both may be payable on termination.
9. Common Questions
Is redundancy pay automatic?
No. You must be dismissed by reason of redundancy and meet the qualifying conditions.
What counts as continuous service?
Continuous employment generally runs without significant breaks. Certain authorised absences (e.g. maternity leave) count towards continuity. Employment tribunal decisions may affect specific cases.
Can an employer offer suitable alternative work?
Yes. If you unreasonably refuse suitable alternative employment, this may affect statutory redundancy pay entitlement.
Key Takeaways
Statutory redundancy pay in England and Wales compensates employees for loss of employment due to redundancy. It is calculated using a clear legal formula based on age, length of continuous service and average weekly pay, with statutory caps on weekly and total payments. Employers must provide written explanations, and employees with disagreements have legal avenues to challenge incorrect calculations. Enhanced redundancy provisions in contracts can deliver more generous benefits.
