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.
Comprehensive guide to the maximum statutory limits on redundancy pay in England and Wales, explaining weekly and total caps, service limits, age bands, practical examples, how contractual redundancy pay differs, and rights to challenge errors in tribunals.
Redundancy pay is a statutory entitlement for many employees who are dismissed because their role is no longer needed. In England and Wales, redundancy pay has specific maximum limits set by statute. These limits affect how much an employee can receive under statutory rules, even if their actual earnings or years of service would suggest a higher amount. Understanding these limits is essential for employees, employers, legal practitioners, and students of UK employment law. This article explains the legal framework, current statutory limits, how they apply in practice, relevant processes, potential risks, and common questions. All references in this article are based on the most up‑to‑date authoritative sources.
What Redundancy Pay Is
Redundancy pay is a financial payment made to eligible employees when their job ceases to exist. It compensates for the loss of employment and recognises length of service. There are two categories:
- Statutory redundancy pay: The minimum amount an employer must pay under UK law.
- Contractual or enhanced redundancy pay: More generous payments an employer may offer if agreed in a contract or workplace policy.
This article focuses on statutory maximum limits. Contractual payments can exceed statutory amounts but depend on individual terms and are outside the statutory caps discussed here.
Legal Basis for Statutory Redundancy Pay
Statutory redundancy pay is set out in the Employment Rights Act 1996 and adjusted periodically by statutory instruments such as the Employment Rights (Increase of Limits) Order. The government updates these limits each year to reflect changes in average earnings and economic conditions.
The key components of statutory redundancy pay are:
- Length of continuous employment.
- Age of the employee during their service.
- Weekly pay (gross) up to a statutory cap.
Statutory redundancy pay is separate from other entitlements such as notice pay, holiday pay, or pay in lieu of notice.
Maximum Statutory Limits (2025/26)
Weekly Pay Cap
A central limit in redundancy pay is the maximum weekly pay figure. This cap restricts the weekly earnings figure an employer can use in the statutory redundancy calculation - even if an employee earns more.
- For redundancies on or after 6 April 2025, the maximum weekly pay used for statutory redundancy calculations is £719.
This cap is reviewed annually and applies to statutory redundancy calculations and basic awards for unfair dismissal in tribunals.
Service Cap
There is also a service cap for statutory redundancy pay:
- Only up to 20 years of continuous service can be counted.
- Service beyond 20 years does not increase statutory redundancy entitlement under the standard formula.
This means that even if an employee has worked for the same employer for 25 years, statutory redundancy calculations will not include more than 20 of those years.
Maximum Total Statutory Redundancy Pay
The combination of the weekly pay cap and the service cap results in a maximum total statutory redundancy payment:
- Maximum statutory redundancy pay for an eligible employee is £21,570 for redundancies on or after 6 April 2025.
This figure is reached where an employee has 20 years' service, all counted at the highest possible weekly pay factor under the statutory formula. Actual entitlement may be lower based on age bands, actual service distribution, and weekly pay if below the weekly cap.
Tax Treatment of Redundancy Payments
Statutory redundancy pay is tax‑free up to £30,000 under current UK tax rules. This exemption applies whether the payment is statutory or enhanced, but other termination payments such as pay in lieu of notice may be taxable.
How the Statutory Caps Work in Practice
Example 1: Reaching the Maximum
A hypothetical employee aged over 41 with 20 years' continuous service and weekly earnings at or above £719 would have redundancy pay calculated as:
- Service years at 1.5 weeks' pay (for age over 41).
- 20 × 1.5 × £719 = £21,570 (the statutory maximum).
Example 2: Pay Below the Cap
An employee with 20 years' service earning a weekly wage below the statutory cap (for example, £500 per week) will receive redundancy based on actual pay:
- 20 × 1.5 × £500 = £15,000 statutory redundancy pay.
- This is below the statutory maximum because actual earnings are lower than the weekly cap.
Impact of Age Bands
Statutory redundancy pay uses age bands in the formula (half, single and one and a half weeks' pay), but the maximums above assume the highest multiplier where applicable. Not all employees reach the highest rate in every year of service - meaning the total may be significantly lower than the statutory maximum depending on the age profile of service.
Enhanced or Contractual Redundancy Pay
Employers may offer enhanced redundancy schemes that go beyond statutory minima. These arrangements might:
- Use a higher weekly pay figure than the statutory cap.
- Count more years of service.
- Offer additional weeks' pay per service year.
Enhanced or contractual redundancy pay is not subject to statutory caps when negotiated in contracts. However, entitlement depends entirely on contractual terms or workplace policies, not on statutory rules. Detailed contract review and legal advice may be necessary where enhanced terms are disputed.
Practical Considerations and Legal Processes
Written Calculations
Employers must provide employees with a written statement explaining how the redundancy payment was calculated. This includes detailing the service years, weekly pay figure used, and how the statutory caps were applied. Failure to provide this statement can give rise to enforcement action.
Disputes and Tribunals
If an employee believes their redundancy pay has been calculated incorrectly - for example, if the statutory caps have not been applied correctly or contractual terms have been ignored - they can raise a dispute with the employer. If unresolved, a claim can be presented to an employment tribunal. Time limits apply, typically:
- 3 months minus one day from termination for contractual redundancy disputes.
- 6 months minus one day from termination for statutory redundancy pay claims.
Common Questions
Can statutory redundancy pay exceed £21,570?
Under current statutory rules for redundancies on or after 6 April 2025, no. Statutory redundancy pay cannot legally exceed £21,570 under the statutory caps.
Does the weekly pay cap change?
Yes. The government updates the weekly pay cap annually, usually in April. Employers should use the rate in force at the relevant redundancy date.
Is contractual redundancy pay capped?
Contractual payments can exceed statutory caps if allowed by contract. They should be clearly documented and agreed. Disputes over contractual terms may be suitable for tribunal claims.
Key Takeaways
In England and Wales, statutory redundancy pay has clear maximum limits:
- Statutory weekly pay used in calculations is capped at £719 (from 6 April 2025).
- Only up to 20 years of service can be counted for statutory redundancy pay.
- The maximum statutory redundancy payment is £21,570 for eligible employees.
- Contractual or enhanced redundancy pay can exceed these limits but depends on specific contractual terms.
Understanding these caps helps employees and employers evaluate redundancy entitlements and plan for disputes or negotiations. Tribunals provide a forum for resolving calculation errors or contractual disagreements if they arise within applicable time limits.
