The maximum statutory redundancy payment an employer can be required to make is £22,530 for redundancies on or after 6 April 2026, based on a weekly pay cap of £751 [1]. That cap rose from £719 under the latest annual uprating of employment rights limits [2].
Statutory redundancy pay is the legal minimum an employer must pay an employee who is made redundant, provided the employee has at least two years of continuous service. The amount is fixed by a statutory formula built on age, length of service and a capped week's pay, so two employees on the same salary can receive very different sums. For any employer running a redundancy process, calculating it correctly is both a legal duty and a payroll task with tax consequences.
This article sets out who qualifies, the exact calculation and its caps, the separate rules on notice pay and collective consultation, and how redundancy payments are taxed and reported through payroll.
Key takeaways
- Employees with at least two years of continuous service are entitled to statutory redundancy pay when genuinely made redundant.
- The amount is 0.5, 1 or 1.5 weeks' pay per year of service depending on age, capped at 20 years of service.
- A week's pay is capped at £751 from 6 April 2026, making the maximum statutory payment £22,530.
- Statutory redundancy pay is free of tax and National Insurance, and the first £30,000 of a wider redundancy package is also tax-free.
- Proposing 20 or more redundancies triggers collective consultation of at least 30 days and advance notification to the Redundancy Payments Service.
What statutory redundancy pay is
Statutory redundancy pay is a payment the law requires an employer to make when it dismisses an employee because the job is no longer needed [1]. A genuine redundancy arises where a business closes, a workplace closes, or the need for employees to do work of a particular kind has reduced or ceased. It is distinct from dismissal for conduct or capability, which carries no redundancy entitlement.
The payment is a statutory minimum, not a ceiling. An employer may offer an enhanced or contractual redundancy scheme that pays more, but it can never pay less than the statutory figure to a qualifying employee [10]. The statutory amount is calculated by a formula set out in the Employment Rights Act 1996 and uprated each year.
Who qualifies for statutory redundancy pay
To qualify, a person must be an employee with at least two years of continuous service with the employer at the date the employment ends [1]. Agency workers, the genuinely self-employed and employees with under two years of service do not qualify for the statutory payment, although shorter-service employees still keep their other rights such as notice.
The dismissal must be by reason of redundancy. Where an employer offers suitable alternative employment and the employee unreasonably refuses it, the right to statutory redundancy pay can be lost [10]. An employee has six months from the date the job ends to pursue a statutory redundancy payment if the employer does not pay it [1].
When redundancy pay is not due
Statutory redundancy pay is not payable in several situations. An employee dismissed for gross misconduct is not entitled to it, because the dismissal is not a redundancy [10]. Nor is it due where the employer offers to renew the contract or provide suitable alternative work that starts within four weeks and the employee accepts, since continuity is preserved.
An employee who leaves before the agreed redundancy date without the employer's agreement may also lose the entitlement [1]. These exceptions matter for payroll because they determine whether the tax-free treatment of a redundancy payment applies at all: a payment that is not genuinely for redundancy may be taxed differently [13].
How statutory redundancy pay is calculated
The statutory formula multiplies three things: the number of complete years of service, a weekly multiplier that depends on the employee's age during those years, and the employee's weekly pay, subject to a cap [15]. Only complete years count, and service is capped at 20 years.
The age-based multiplier applies to each year of service according to the employee's age during that year. The table below sets out the three bands.
| Age during the year of service | Weeks' pay for that year |
|---|---|
| Under 22 | 0.5 week |
| 22 to 40 | 1 week |
| 41 and over | 1.5 weeks |
Because the multiplier is applied year by year, an employee's entitlement reflects their age across their whole period of service, not just their age at dismissal [15]. An employer counting back over a long service record applies the band that matched the employee's age in each separate year.
The weekly pay cap and the maximum payment
A week's pay for the calculation is the employee's average weekly earnings over the 12 weeks before the day redundancy notice was given [1]. That figure is then capped. From 6 April 2026 the cap on a week's pay is £751, up from £719 under the previous limits [2].
The two caps combine to fix a hard maximum. With service capped at 20 years, the highest possible multiplier is 30 weeks (20 years at 1.5 weeks each for an employee always aged 41 or over), and 30 weeks at the £751 cap produces a maximum statutory redundancy payment of £22,530 [1]. An employee earning well above £751 a week still has their statutory calculation based on the capped figure, which is why high earners often rely on an enhanced contractual scheme instead.
A worked example
Consider an employee aged 45 with 10 complete years of service, earning £900 a week. The weekly pay is capped at £751 for the calculation [2]. The employee was aged 41 or over throughout those 10 years, so each year attracts 1.5 weeks' pay, giving 15 weeks in total.
The statutory redundancy payment is therefore 15 multiplied by £751, or £11,265 [15]. Had the same employee been under 41 for some of those years, the earlier years would attract only 1 week each, reducing the total. The government provides an official redundancy pay calculator that applies these bands automatically, and HMRC-recognised UK payroll software performs the same calculation on the leaver's final pay record.
Statutory notice periods
Redundancy pay is separate from notice pay, and an employer owes both [4]. Statutory minimum notice depends on length of service, and the contract may offer more but never less. The table below sets out the statutory minimums.
| Length of continuous service | Statutory minimum notice |
|---|---|
| 1 month to under 2 years | 1 week |
| 2 to 12 years | 1 week per complete year |
| 12 years or more | 12 weeks |
Notice pay is based on the employee's average weekly earnings over the 12 weeks before notice starts, and it is paid in addition to any redundancy payment [4]. Unlike redundancy pay, notice pay is ordinary earnings and is subject to income tax and National Insurance in the normal way.
Payment in lieu of notice
An employer can end the employment immediately and pay the employee their notice entitlement as a lump sum, known as payment in lieu of notice, or PILON [4]. The employee receives basic pay for the notice period, plus any contractual extras such as pension contributions or private medical cover that would have continued during notice.
Payment in lieu of notice is taxable earnings and attracts tax and National Insurance, because it represents pay the employee would have received for working the notice period [7]. This is the point where the tax-free treatment of redundancy pay and the taxable treatment of notice pay diverge, which the next sections explain.
Collective redundancy consultation
Where an employer proposes 20 or more redundancies at a single establishment within any 90-day period, collective consultation duties apply on top of the individual process [5]. The consultation must take place with recognised trade union representatives or elected employee representatives before any redundancy takes effect.
The minimum consultation period scales with the number of proposed redundancies. The table below sets out the thresholds.
| Number of proposed redundancies | Minimum consultation before first dismissal |
|---|---|
| 20 to 99 | 30 days |
| 100 or more | 45 days |
There is no maximum length for a consultation, and fewer than 20 redundancies still require fair individual consultation even though the collective rules do not bite [5]. The collective rules exist to give affected staff and their representatives a genuine opportunity to influence the proposals before decisions are final [11].
Notifying the Redundancy Payments Service
An employer proposing 20 or more redundancies must also notify the Redundancy Payments Service in advance using form HR1, submitted online [6]. The deadline mirrors the consultation period: at least 30 days before the first dismissal for 20 to 99 redundancies, and at least 45 days before for 100 or more.
Failing to notify the Redundancy Payments Service is a criminal offence and can lead to an unlimited fine [5]. Redundancies carried out without proper collective consultation are very likely to be found unfair at an employment tribunal, so the procedural duties carry real financial exposure beyond the redundancy payments themselves [11].
Tax and National Insurance on redundancy pay
Statutory redundancy pay is free of both income tax and National Insurance [8]. Beyond the statutory figure, the first £30,000 of a wider redundancy or termination package is also tax-free, and statutory redundancy pay counts towards that £30,000 [7].
Amounts above the combined £30,000 are taxed, and they also attract employer Class 1A National Insurance [7]. With the employer rate set at 15%, the employer pays Class 1A National Insurance on the slice of a redundancy package above £30,000 [9]. Employee National Insurance does not apply to the genuine redundancy element, but it does apply to earnings-type payments bundled into a settlement.
What the £30,000 covers and what falls outside it
The £30,000 exemption applies to the genuine compensation for loss of employment: statutory redundancy pay, enhanced or contractual redundancy pay, and certain non-cash benefits [7]. These elements are tax-free up to the combined £30,000 limit, with tax and employer Class 1A National Insurance applying only to the excess.
Several common payments fall outside the exemption entirely and are taxed as ordinary earnings from the first pound. Unpaid wages, accrued holiday pay, contractual bonuses and payment in lieu of notice are all earnings, not compensation, so they are subject to income tax and National Insurance in full [8]. Where a notice period is not worked, a calculation known as post-employment notice pay ensures the notice element is taxed even if it is dressed up as compensation [7].
Time off and other rights during notice
An employee under notice of redundancy who has at least two years of continuous service is entitled to reasonable paid time off during working hours to look for new work or to arrange training [16]. The pay for this time off is capped at 40% of a week's pay, and the right sits alongside redundancy and notice pay rather than reducing either of them [16].
Redundancy can also follow a period of lay-off or short-time working, where the employer temporarily provides no work or significantly reduced work and pay [17]. Employees kept on with no pay during a lay-off may be entitled to a statutory guarantee payment, capped at £41 a day from 6 April 2026 under the latest uprating of employment limits [2]. Where a lay-off or short-time period runs long enough, an eligible employee can give notice of an intention to claim a redundancy payment rather than wait indefinitely for work to return [17]. For a growing business, reliable small business payroll keeps these guarantee payments and time-off entitlements recorded correctly on the payslip.
Payroll and reporting duties for the employer
A redundancy triggers the standard leaver process in payroll. The employer records the leaving date in the final Full Payment Submission, issues the employee a P45, and reports any taxable element of the termination payment through Real Time Information [12]. Software that holds the HMRC Recognised badge submits these returns automatically and applies the correct code to any post-leaving payment.
Where a package exceeds £30,000, the taxable excess and the employer Class 1A National Insurance on it must be reported correctly, and a payment made after the P45 has been issued uses the 0T tax code on a week 1 or month 1 basis [13]. For accountants handling redundancies across several client payrolls, a payroll bureau platform keeps the leaver reporting consistent, and platforms embedding payroll through a payroll API can automate the same leaver and termination logic inside their own product. Getting the reporting right also protects the employer from the wider cost of a higher employer National Insurance bill being miscalculated on the taxable slice.
Conclusion
Statutory redundancy pay rests on a formula that is simple in outline and fiddly in detail: age bands, complete years of service, a capped week's pay, and a 20-year ceiling that fixes the maximum at £22,530. Around that core sit three separate obligations that employers often confuse with the payment itself, namely notice pay, collective consultation and the tax treatment of the wider package.
The figures move each April, and the weekly pay cap of £751 is the number that drives the whole calculation. With the employer National Insurance rate at 15% now biting on any part of a package above £30,000, the cost of a redundancy extends past the headline payment into the payroll and tax reporting that follows it. Accurate leaver processing, correct notice and tax treatment, and timely consultation where the numbers require it are what keep a redundancy both lawful and predictable.
Frequently asked questions
How much is the maximum statutory redundancy payment?
The maximum statutory redundancy payment is £22,530 for redundancies on or after 6 April 2026 [1]. This reflects a maximum of 20 years of service, a top multiplier of 1.5 weeks per year for employees aged 41 and over, and a week's pay capped at £751 [2]. An employee earning more than £751 a week still has their statutory figure calculated on the capped amount.
Is statutory redundancy pay taxable?
No. Statutory redundancy pay is free of income tax and National Insurance [8]. In addition, the first £30,000 of a wider redundancy package, including enhanced redundancy pay, is tax-free, and statutory redundancy pay counts towards that £30,000 [7]. Amounts above £30,000 are taxed and attract employer Class 1A National Insurance.
How many years of service count towards redundancy pay?
Only complete years of continuous service count, and the calculation is capped at 20 years [15]. An employee needs at least two years of continuous service to qualify for any statutory redundancy pay at all [1]. Where service exceeds 20 years, the most recent 20 years are used.
When must an employer start collective redundancy consultation?
An employer proposing 20 or more redundancies at one establishment within a 90-day period must consult collectively for at least 30 days before the first dismissal, rising to 45 days for 100 or more redundancies [5]. The employer must also notify the Redundancy Payments Service in advance using form HR1, and failing to do so is a criminal offence carrying an unlimited fine [6].
