Statutory Redundancy Pay Explained: How It's Calculated

Once a redundancy consultation process has run its course and a role is confirmed as redundant, employers still need to get the resulting payment right — and statutory redundancy pay follows a specific, age-weighted formula that catches out employers who assume it's simply a flat number of weeks per year of service.

Who qualifies

To qualify for statutory redundancy pay, an employee needs at least two years of continuous service with their employer. This is separate from, and comes before, the wider collective consultation obligations that apply when an employer proposes making a larger number of redundancies within a short period.

The age-based formula

Statutory redundancy pay is calculated using a multiplier that increases with age for each complete year of service: half a week's pay for each full year worked while the employee was under 22, one week's pay for each full year worked between the ages of 22 and 40, and one and a half weeks' pay for each full year worked at age 41 or older. Service is counted backwards from the redundancy date, and only complete years count.

The weekly pay cap

The calculation doesn't use an employee's actual weekly pay without limit — a statutory cap applies to the weekly figure used in the formula, set at £719 for the 2026/27 year and uprated periodically. An employee earning well above this figure still has their redundancy pay calculated using the capped amount, not their actual salary, which often surprises higher earners expecting a payout proportionate to their real pay.

The service cap and maximum payout

Only a maximum of 20 years' service counts towards the calculation, even where someone has worked for an employer considerably longer. Combining the maximum service cap, the highest age-based multiplier, and the current weekly pay cap produces the statutory ceiling on redundancy pay — currently £21,570 (20 years x 1.5 weeks x £719) — regardless of how much someone actually earned or how many years beyond 20 they'd worked.

Statutory minimum versus enhanced redundancy pay

The figures above are the legal minimum. Many employers, particularly larger organisations or those with a collective agreement in place, offer enhanced redundancy terms — often expressed as an uncapped week's pay per year of service, or a more generous multiplier — as a matter of policy or contract rather than legal obligation. Where an enhanced scheme exists, it typically needs to be applied consistently to avoid discrimination claims from employees who received less favourable treatment without an objectively justified reason.

Tax treatment

Statutory redundancy pay, and most enhanced redundancy payments up to a set threshold, can typically be paid free of income tax and National Insurance, though this treatment has limits and doesn't extend to payments in lieu of notice or other contractual payments bundled into a wider termination package. Employers should take care to correctly categorise each element of a termination payment rather than assuming the whole package qualifies for the same tax treatment.

Individual versus collective redundancy

The calculation set out here applies to individual statutory redundancy pay regardless of how many people are affected. Where an employer proposes making 20 or more people redundant at one establishment within a 90-day period, additional collective consultation obligations kick in on top of the individual pay calculation, with their own timelines and potential penalties for getting the process wrong. Getting an employee's written statement of particulars right at the start of employment also matters here, since notice periods and continuous service dates recorded in it often become relevant when a redundancy calculation is challenged.

What counts as a week's pay

A week's pay for redundancy purposes is normally based on average earnings over a reference period, and for employees with variable hours or pay, this average calculation can differ meaningfully from what a simple current-salary snapshot would suggest. Employers should recalculate this figure carefully for anyone with irregular hours, overtime, or a recent pay change, rather than assuming a single current weekly figure captures the correct legal calculation.

Employers should also remember that an employee who unreasonably refuses a genuinely suitable alternative role offered during a redundancy process can lose their entitlement to statutory redundancy pay entirely, which makes documenting exactly what alternative was offered, and why it was or wasn't suitable, an important part of a defensible redundancy process rather than an afterthought.

Frequently asked questions

How many years of service are needed to qualify for redundancy pay? At least two years of continuous service with the employer.

Is there a maximum statutory redundancy payment? Yes — combining the 20-year service cap, the highest age multiplier, and the current weekly pay cap produces a statutory ceiling, currently £21,570.

Does redundancy pay use an employee's actual salary? Only up to the statutory weekly pay cap; earnings above that cap are not reflected in the redundancy pay calculation unless an employer offers an enhanced scheme.

Is statutory redundancy pay taxable? It's generally paid free of income tax and National Insurance, subject to the wider rules on how the rest of a termination package is structured.