Statutory redundancy pay is the minimum lump sum an employer must pay an employee with at least two years’ continuous service who is dismissed because of redundancy. It is worked out from the employee’s age in each year of service, the number of complete years (capped at 20) and a week’s pay, which is capped at £751 for redundancies on or after 6 April 2026, so the most anyone can receive is £22,530. It is not taxed as earnings, but it counts towards the £30,000 threshold for termination payments.

Who qualifies for statutory redundancy pay?

The right sits in Part 11 of the Employment Rights Act 1996. Section 155 says an employee has no right to a redundancy payment unless they have been continuously employed for at least two years ending with the relevant date, which is broadly the date the employment ends. GOV.UK’s employer guidance lists the conditions: the person must be an employee working under a contract of employment, must have at least two years’ continuous service, and must have been dismissed, laid off or put on short time working. People who opted for early retirement do not qualify.

The right can also be lost or excluded. An employee who unreasonably turns down an offer of suitable alternative employment may lose the payment, and an employee dismissed for misconduct has not been made redundant. GOV.UK lists groups who are outside the statutory scheme, including Crown servants, members of the armed forces and police, share fishermen, apprentices who are not employees at the end of their training, and a domestic servant who is a member of the employer’s immediate family.

An employer can always pay more than the statutory amount, or pay something to staff with less than two years’ service. That extra is contractual or discretionary pay. It does not change the statutory calculation, but it does affect the tax position described below.

How do the age bands work?

Section 162 of the Act tells you to start at the relevant date, count backwards through the period of continuous employment, and allow an amount for each complete year according to the employee’s age in that year:

  • one and a half weeks’ pay for each year in which the employee was not below age 41;
  • one week’s pay for each year in which they were not below age 22 (and not within the first band);
  • half a week’s pay for each other year, meaning years under age 22.

Only complete years count, so a final part year is ignored. Section 162(3) stops the count once 20 years have been reckoned. Because the count runs backwards from the end of employment, the 20 years used are always the most recent ones, which for long serving staff are the years in the higher age bands. Years before the twentieth most recent year simply drop out.

What counts as a week’s pay, and how does the cap work?

A week’s pay is defined in Chapter 2 of Part 14 of the Act (sections 220 to 229). Where the employee has normal working hours and pay does not vary with the work done, section 221(2) makes a week’s pay the amount payable under the contract for a normal working week. Where pay does vary, for example with commission or piece rates, section 221(3) uses the average hourly rate over the 12 weeks ending before the calculation date. Where there are no normal working hours, section 224 uses average weekly remuneration over 12 weeks, ignoring weeks in which nothing was paid. GOV.UK summarises the result as the average earned per week over the 12 weeks before the day the employee got their redundancy notice.

Section 227 then caps a week’s pay for redundancy payments. The figure in the Act is now £751, and GOV.UK confirms that for redundancies on or after 6 April 2026 weekly pay is capped at £751 and the maximum statutory redundancy pay is £22,530, which is 20 years at one and a half weeks each. Redundancies before that date use lower caps. The cap applies to the gross week’s pay before the multiplier, so anyone earning more than £751 a week is calculated as if they earned exactly £751. GOV.UK notes that rates may be different in Northern Ireland.

What does a calculation look like?

Illustration only. The figures below are invented to show the method and assume a redundancy after 6 April 2026.

Employee Service and age Weeks Week’s pay used Statutory payment
A Joined on her 43rd birthday, dismissed on her 52nd birthday: 9 complete years, all at 41 or over 9 x 1.5 = 13.5 £900 contractual, capped at £751 £10,138.50
B Joined on his 20th birthday, dismissed on his 30th birthday: 2 years under 22 and 8 years at 22 to 40 (2 x 0.5) + (8 x 1) = 9 £520, below the cap £4,680.00

If Employee A’s employer also paid an enhanced redundancy payment of £25,000 and she worked her full notice, her combined package covered by the £30,000 threshold would be £35,138.50. The first £30,000 would be free of tax and the excess of £5,138.50 would be taxed through payroll, with employer Class 1A National Insurance on the same excess.

When must the payment be made, and what if it is not?

GOV.UK says the employer must make the payment when it dismisses the employee or soon after, and the employee has a right to a written statement showing the amount and how it was worked out. Section 164 sets a six month time limit: the right is lost unless, within six months of the relevant date, the payment has been agreed and paid, the employee has claimed it in writing, the question has been referred to an employment tribunal, or an unfair dismissal complaint has been presented. A tribunal can still consider a claim made in the following six months.

If the employer is insolvent, or refuses to pay after the employee has taken all reasonable steps short of legal proceedings, section 166 lets the employee apply to the Secretary of State, which in practice means the Insolvency Service’s Redundancy Payments Service. GOV.UK also says the Redundancy Payments Service may help an employer whose business would become insolvent because of the payments, with the debt repaid as soon as possible.

Lay off and short time working can trigger a claim even without a dismissal. GOV.UK says an employee can claim a redundancy payment if lay off or short time working runs for 4 or more weeks in a row, or 6 or more weeks in a 13 week period where no more than 3 are in a row, and they must give written notice first.

How is statutory redundancy pay taxed?

Section 309 of the Income Tax (Earnings and Pensions) Act 2003 says no income tax liability arises on a statutory redundancy payment as earnings. HMRC’s Employment Income Manual at EIM13750 explains that statutory redundancy payments are instead always chargeable as specific employment income under section 401 and benefit from the £30,000 threshold in section 403. In practice that means the statutory payment is added to any enhanced redundancy pay, ex gratia payments and non cash benefits given on termination, and only the combined amount above £30,000 is taxed.

GOV.UK’s guidance on termination payments says the employer pays employer Class 1A National Insurance on any amount over the combined £30,000, and HMRC’s rates for 2026 to 2027 put the Class 1A rate on termination awards at 15%, reported and paid through payroll during the year. GOV.UK’s worked examples also confirm that post employment notice pay does not apply to statutory redundancy pay, so the statutory element is never treated as notice pay.

Other items in a leaving package are taxed in full as earnings, whatever the size of the package: unpaid wages, holiday pay, bonuses, payments for restrictive covenants and payments in lieu of notice. If a termination payment is made after the P45 has been issued, GOV.UK says the employer uses a 0T tax code. See our guides to P60, P45 and payslips, PAYE tax codes and holiday pay for irregular hours workers, since accrued holiday paid on leaving is taxable pay, not part of the redundancy payment.

What mistakes do employers make?

  • Using the employee’s age at dismissal for every year, instead of their age in each year counted backwards.
  • Counting a final part year, or more than 20 years.
  • Applying the £751 cap to the total instead of to the week’s pay, or using net rather than gross pay.
  • Treating the whole leaving package as covered by the £30,000 threshold, when notice pay, holiday pay and wages are fully taxable.
  • Forgetting the employer Class 1A liability on the excess over £30,000.
  • Using length of service as the only selection criterion, which GOV.UK warns is likely to be age discrimination.

Termination payments are a regular feature of HMRC employer compliance checks, so keep the written calculation, the notice dates and the split between statutory, enhanced and earnings elements on file. An employee who has overpaid tax because of a large final payment can reclaim it; see claiming tax back after leaving a job.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.