In the UK, redundancy is a form of dismissal of an employee by an employer on the basis that the employee’s role is no longer needed. To qualify for statutory redundancy pay, you must have worked for your employer for a minimum period.
The amount of redundancy pay is calculated based on your years service, which determines your eligibility and the amount you are entitled to receive.
Employers may make an employee “redundant” due to changes in its business, such as closure, downsizing or restructuring. Accordingly, an employer may not always be entitled to dismiss employees on the basis of redundancy.
This blog post will explain what redundancy is, the process of redundancy payments and the statutory rights that employees are entitled to, including the exceptions where statutory redundancy payments may not apply.
Introduction to statutory redundancy
Statutory redundancy pay is a legal entitlement for employees in the UK who are made redundant. To qualify for statutory redundancy pay, employees must have worked for their employer for at least two years and be classified as employees, not workers or self-employed individuals. This scheme acknowledges an employee’s past service and provides a severance payment based on their age, length of service, and weekly pay. Employees can claim statutory redundancy pay within six months of their employment ending, and the claim must be made in writing to the employer or relevant authority. Understanding these criteria is crucial for employees to ensure they receive the compensation they are entitled to when made redundant.
What is redundancy?
Redundancy is defined by the Employment Rights Act 1996 (the Act).
A dismissed employee should be considered dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:
(a) the fact that his employer has ceased or intends to cease:
(i)to carry on the business for the purposes of which the employee was employed by it; or
(ii)to carry on that business in the place where the employee was so employed;
or
(b)the fact that the requirements of that business
(i) for employees to carry out work of a particular kind; or
(ii)for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
have ceased or diminished or are expected to cease or diminish*.*
A redundancy dismissal must be genuine, meaning the employer has no other reasonable alternative to ending the employee’s contract for the reasons described above.
A “genuine” reason could include situations such as where a business is not attracting enough customers, new technologies are introduced that replace the employee’s functions, the business is reorganising or targeting new sectors in which the existing employee has no experience and so on. Statutory redundancy pay is determined by considering an employee’s age, along with their length of service and salary.
If a redundancy is genuine, then that would constitute ‘fair‘ dismissal for the purposes of the Act and the employee would not be able to claim against the employer for ‘unfair‘ dismissal.
An employee cannot be made redundant because of age, gender, disability or pregnancy. Dismissal for these reasons could be unfair dismissal.
Similarly, if an employee is underperforming or is simply difficult to get on with, then the employer would not be able to just make them redundant. Other procedures under the Act (and, where applicable, the employee’s contract of employment) would have to be followed.
That said, it is potentially lawful to rely on an employee’s individual characteristics when considering whether to make them redundant as opposed to other employees that are also being considered for redundancy. Individual characteristics must be used with caution, as an employer runs the risk of an unfair dismissal if the characteristics themselves are unfair. For example, an employer may choose to make redundant the employees with the shortest amount of time with the company first. This could have unintended effects, such as targeting one specific group of people hired at the same time over others. If an employee is dismissed and then re-employed by the same employer within four weeks, the time between the two employments counts towards the calculation of continuous service.
In addition, employers must follow correct procedure when making employees redundant, including consulting with employees and, where applicable, considering alternatives to redundancy (such as retraining or redeployment).
Entitlement to Redundancy Payments
To be entitled to redundancy payments, employees must meet specific eligibility criteria. They must have been continuously employed by their employer for at least two years, and their employment must have been terminated due to redundancy. Employees who are made redundant may be entitled to statutory redundancy pay, notice pay, and holiday pay. The amount of statutory redundancy pay is calculated based on the employee’s age, length of service, and weekly pay, with a maximum statutory redundancy pay of £21,570. Employees who have worked for their employer for less than two years or are not classified as employees, such as workers or self-employed individuals, are not entitled to statutory redundancy pay. Understanding these entitlements helps employees know what they can expect when facing redundancy.
Calculating Redundancy
Calculating redundancy pay involves determining the employee’s length of service, age, and weekly pay. The calculation is based on the employee’s full years of service, with half a week’s pay for each full year of service while under the age of 22, one week’s pay for each full year of service while aged 22-40, and one and a half weeks’ pay for each full year of service while aged 41 or over. The maximum number of years that can be taken into account is 20, and the maximum weekly pay is £719. Employees can use the redundancy pay calculator on GOV.UK to calculate their statutory redundancy pay. The calculation is as follows: (number of years worked) x (week’s pay), with the result being the employee’s statutory redundancy pay. This method ensures that employees receive a fair redundancy payment based on their service and age.
Notice Period and Contractual Notice
When an employee is made redundant, they are entitled to a notice period, which can be either statutory notice or contractual notice. Statutory notice is the minimum notice period required by law, which is one week’s notice for employees who have worked for their employer for at least one month but less than two years, two weeks’ notice for employees who have worked for their employer for at least two years but less than 12 years, and 12 weeks’ notice for employees who have worked for their employer for 12 years or more. Contractual notice, on the other hand, is the notice period specified in the employee’s contract, which can be longer than the statutory notice period. Employees who are made redundant may be entitled to notice pay, which is pay in lieu of notice, or they may be required to work their notice period. Understanding the difference between statutory and contractual notice helps employees know their rights and what to expect during the redundancy process.
Redundancy payments
When an employee is made redundant, they may be entitled to the redundancy pay. This can be made up of:
- Statutory redundancy pay – the minimum amount of compensation set by the government
- Contractual redundancy pay – some employers may offer a more generous redundancy package than the statutory minimum
It is important to use the weeks leading up to the redundancy notice to ensure an accurate calculation of redundancy payments.
Employees should receive a written notice from their employer detailing the statutory redundancy pay (SRP) and other essential information.
Statutory redundancy payments
Under UK employment law, employees who have been continuously employed for at least two years are entitled to statutory redundancy pay.
Statutory redundancy is calculated based on the employee’s age, length of service and weekly gross salary (subject to a maximum limit). It is important to note that redundancy pay is separate from other payments such as notice pay, holiday pay, or pay in lieu of notice, which an employee may also be entitled to.
Specifically, the amount of redundancy is calculated based on the following:
- Half a week’s salary for each full year the employee was under the age of 22
- One week’s salary for each full year the employee was aged 22 or older but under 41
- One and half week’s salary for each full year the employee was aged 41 and older
If you transition to a new employer after being laid off, the redundancy pay calculation remains the same.
The weekly salary used to calculate redundancy pay is capped at £719 per week (for employees made redundant on or after 6 April 2025), regardless of the employee’s actual earnings. The maximum number of years for which an employee can be paid statutory redundancy is capped at 20 years.
This means that the maximum amount that an individual could receive is £21,570 as statutory redundancy pay (one and a half week’s salary at the £719 maximum multiplied by 20). Most individuals would receive less. For example:
An employee aged 45 with 10 years of continuous employment and a weekly salary of £600 would receive:
- 3 years of redundancy pay at one a half weeks’ salary per year (for being over 41 years old) = 3 x 1.5 x £600 = £2,700
- 7 years of redundancy pay at one week’s salary per year (for being between 22 and 41 years old) = 7 x 1 x £600 = £4,200
- Total* statutory redundancy pay: £6,900*
Redundancy pay is tax-free up to £30,000. This tax free benefit includes both statutory redundancy pay and any additional redundancy pay given to you by your employer. This limit can be carried forward to any subsequent redundancy payments from the same job, highlighting its financial significance.
Redundancy Payment and Tax
Redundancy payments are subject to tax, but the first £30,000 of the payment is tax-free. Any amount above £30,000 is subject to income tax and National Insurance contributions. Employees who receive a redundancy payment may be entitled to claim a refund of tax if they have overpaid tax. The redundancy payment is also subject to tax rules, and employees may need to complete a tax return to report the payment. Employees who are made redundant may also be entitled to other payments, such as holiday pay and pension contributions, which are taxable. It is essential for employees to understand their tax obligations and seek advice from a tax professional if necessary. The tax treatment of redundancy payments can be complex, and employees should ensure they receive the correct amount of tax-free payment and pay the correct amount of tax on their redundancy payment.
Exceptions
While most employees are entitled to statutory redundancy pay, there are several important exceptions. An employee will NOT be entitled to redundancy pay in the following situations:
- Less than two years of continuous employment: employees with less than two years of service are not entitled to statutory redundancy pay. However, they may still be entitled to other payments, such as payment in lieu of notice or holiday pay (as should provided for in their contract or otherwise set out in law).
- Voluntary redundancy: if an employee voluntarily agrees to leave the company as part of a redundancy program, they may not be entitled to statutory redundancy pay unless the employer confirms that they are being dismissed as a result of redundancy (as opposed to the employee merely deciding to resign). Employees could lose their redundancy payment if they refuse a suitable job offer without a good reason.
- Self-employed individuals: workers and self-employed contractors do not have the right to redundancy pay, as redundancy provisions apply only to employees.
- Dismissal due to retirement: if an employee is retired by their employer, this does not count as redundancy and statutory redundancy pay will not apply. Dismissal due to reaching retirement age was outlawed in 2011, but it can still apply in certain situations (for example, the Judicial Pensions and Retirement Act 1993 states that most judges must retire at age 75).
- Fixed-term contracts: employees on fixed-term contracts who are not offered a permanent position when their contract ends do not qualify for redundancy payments unless their contract is terminated earlier than expected due to a redundancy situation. If an employer fails to make timely redundancy payments, employees may need to file a claim with an employment tribunal, particularly when initial attempts to resolve the issue informally do not succeed.
- Employees who reject an offer of suitable alternative employment: if an employee is offered alternative employment that is deemed suitable and they refuse it, they may lose their entitlement to redundancy pay.
Redundancy can be a challenging and stressful experience for employees, but UK law ensures that employees are compensated through statutory redundancy pay if they meet the eligibility criteria. While most employees with at least two years of service are entitled to redundancy pay, it is important to understand the exceptions and specific conditions that apply. Transitioning to a new job after redundancy can also have implications on redundancy pay and tax exemptions, making it crucial to communicate with both old and new employers during this period.
Employers must ensure they follow the correct legal procedures and employees should seek professional advice if they believe they have been unfairly dismissed or their redundancy rights have not been properly followed. Regardless of the situation, employees will continue to receive their usual pay and benefits during their notice period as outlined in their contracts.
If you are an employer that wants to ensure it follows correct procedures or an employee that needs advice regarding a redundancy situation, please do not hesitate to contact us and our employment law experts will be more than happy to help.
