How Does UK Redundancy Pay Work? Your Complete 2026 Guide

The Basics

If you are made redundant in the United Kingdom and have worked for your employer for at least two continuous years, you are entitled to statutory redundancy pay. This is a legal minimum — your employer may offer more through an enhanced redundancy scheme, but they cannot offer less.

The amount is calculated using three factors: your age, your length of continuous service, and your weekly pay — subject to a cap of £643 per week in 2026.

The Official Formula

UK statutory redundancy pay is calculated by counting your completed years of service (up to a maximum of 20 years) and applying an age-banded multiplier to each year:

• Under age 22: Half a week's pay per year of service
• Age 22 to 40: One week's pay per year of service
• Age 41 and over: One and a half week's pay per year of service

For example: if you are 44 years old, earn £800 per week (capped at £643), and have worked for 8 years, your statutory redundancy pay would be calculated as 8 × 1.5 × £643 = £7,716.

Only the 20 most recent years of service count. If you have worked somewhere for 25 years, only the last 20 are used in the calculation.

The Weekly Pay Cap (2026)

The statutory formula does not use your actual weekly pay if it exceeds the government-set cap. For 2026, that cap is £643 per week (equivalent to approximately £33,436 per year). If your actual weekly pay is lower than this, your actual pay is used. This cap is reviewed by the government each April.

If your salary is above the cap, your employer may — but is not legally required to — use your actual pay in their calculation through an enhanced redundancy scheme.

Notice Pay: Separate from Redundancy Pay

Redundancy pay and notice pay are two distinct entitlements that are often confused. In addition to redundancy pay, you are also entitled to a statutory notice period (or payment in lieu of notice):

• At least one week's notice for each complete year of service
• Maximum of 12 weeks' notice, regardless of how long you have worked there

Notice pay is calculated on your actual salary (not the capped figure) and is subject to income tax and National Insurance. Redundancy pay under £30,000 is tax-free.

The £30,000 Tax-Free Threshold

One of the most favourable aspects of UK redundancy pay is the tax treatment. The first £30,000 of your redundancy payment — including statutory and any enhanced pay — is completely free of income tax and National Insurance contributions. Any amount above £30,000 is taxable as regular income.

This threshold has remained at £30,000 for a number of years and applies to genuine redundancy payments. Payments in lieu of notice (PILON) are always taxable regardless of the amount.

Enhanced Redundancy Pay

Many large employers — particularly in the public sector, financial services, and long-established industries — offer enhanced redundancy schemes that pay more than the statutory minimum. Common enhancements include:

• Using actual weekly pay rather than the capped figure
• Applying higher multipliers (e.g. 1.5x or 2x the statutory amount)
• Removing the 20-year service cap
• Including bonus or commission in the weekly pay calculation

Check your employment contract or company handbook for details of any enhanced scheme.

Your Rights During Redundancy

Beyond pay, you have a number of procedural rights during a redundancy process:

• Consultation: Your employer must consult with you before making you redundant. For collective redundancies (20 or more staff), minimum consultation periods apply.
• Fair selection: The criteria used to select who is made redundant must be fair, objective, and not discriminatory.
• Right to appeal: You can appeal the redundancy decision internally.
• Time off to look for work: If you have worked for two or more years, you are entitled to reasonable paid time off to look for a new job during your notice period.

What If Your Employer Refuses to Pay?

If your employer refuses to pay statutory redundancy pay, or becomes insolvent, you can claim from the government's Redundancy Payments Service. Claims must generally be made within six months of the date your employment ended.