What Is Statutory Redundancy Pay?
Statutory redundancy pay is the legal minimum an employer must pay an employee whose job is being made redundant. It is not compensation for losing your job and it is not a reward for good service. In law it is a payment for the loss of the job itself, which is why it is based on age and length of service rather than on performance, seniority or how badly the redundancy was handled.
To qualify, an employee needs at least two years of continuous service with the employer. Below two years there is no statutory entitlement at all, no matter how the redundancy came about.
For 2026/27, three numbers do all the work:
- £751 is the maximum a week's pay can be counted at
- 20 years is the maximum service that can be counted
- £22,530 is the resulting maximum statutory redundancy payment
The weekly cap rose from £719 on 6 April 2026, which took the maximum from £21,570 to £22,530. If someone was made redundant before 6 April 2026, the older, lower figures apply, and the date that matters is the date the employment ends, not the date the payment lands in the bank.
Northern Ireland runs its own limits. The cap there is £783 a week from 6 April 2026, giving a maximum of £23,490.
How Is Redundancy Pay Calculated?
The calculation has three ingredients: complete years of service, the employee's age during each of those years, and a week's pay.
Each complete year of service earns:
- Half a week's pay for each year worked while under 22
- One week's pay for each year worked while 22 or older but under 41
- One and a half weeks' pay for each year worked while 41 or older
Two details trip people up more than anything else in this calculation.
Service is counted backwards from the end date. If someone has 28 years of service, you do not take the first 20. You take the most recent 20, which are the years they were oldest and therefore the years worth 1.5 weeks each. This works heavily in favour of long serving older employees and is the reason the maximum is 30 weeks' pay rather than 20.
Only complete years count. Eleven months and three weeks is worth nothing. Someone approaching an anniversary can lose a full week and a half of pay to a termination date set a fortnight early, and in most cases that date is a choice the employer is making.
Worked Examples on 2026/27 Rates
| Age at end date | Complete years' service | Gross salary | Weekly pay used | Weeks due | Statutory redundancy pay |
|---|---|---|---|---|---|
| 26 | 4 | £26,000 | £500.00 | 4 | £2,000.00 |
| 38 | 10 | £34,000 | £653.85 | 10 | £6,538.46 |
| 52 | 15 | £45,000 | £751.00 (capped) | 20.5 | £15,395.50 |
| 63 | 30 | £60,000 | £751.00 (capped) | 30 (capped) | £22,530.00 |
The 52 year old case is the one worth reading twice. Fifteen years of service split at age 41 gives four years at one week and eleven years at one and a half, which is 20.5 weeks. Their actual weekly pay is £865.38, so the cap costs them £2,344.88. The 63 year old loses far more: 30 weeks of real pay would be £34,615, and the cap holds them to £22,530.
For employees with variable hours or fluctuating pay, a week's pay is the average over the 12 weeks up to the day redundancy notice was given. Weeks with no pay are skipped and replaced with earlier ones. Statutory redundancy pay is based on gross pay before tax, and it uses contractual pay rather than overtime unless the overtime is guaranteed.
The £39,052 Line Nobody Mentions
Divide the weekly cap by 52 and you get £39,052. That is the salary at which statutory redundancy pay stops responding to earnings entirely.
Someone on £39,052 and someone on £139,052 with identical age and service receive exactly the same statutory redundancy payment. Every pound above that line buys nothing. Median full time pay in the UK is now above that figure, which means the cap is no longer something that only affects senior staff. It is the normal case.
This matters more than it looks, because it changes what statutory redundancy pay actually is. For a part time employee on £18,000 it functions as intended, a payment scaled to what they earned. For anyone on a middle income it has quietly become a flat rate benefit dressed up as an earnings related one, and the higher your salary the smaller the proportion of it the statutory scheme replaces.
Is Redundancy Pay Taxable?
Statutory redundancy pay is tax free. So is any genuine redundancy payment on top of it, but only up to a combined £30,000. Above that, income tax applies through PAYE in the normal way.
Since the statutory maximum is £22,530, pure statutory redundancy pay is always tax free today. The exemption only bites when an employer pays an enhanced package.
There is no employee National Insurance on a termination award at all, whether it is under or over the £30,000 line. The employer, however, pays Class 1A National Insurance at 15 percent on everything above £30,000. That has been the position since April 2020, and it is the part employers forget when they agree a settlement figure in a meeting.
What Is Not Covered by the £30,000
This is where most of the tax goes wrong. The £30,000 exemption applies to the redundancy payment itself. It does not apply to:
- Notice pay. Since April 2018, the value of an employee's notice period is treated as post-employment notice pay, taxed as normal earnings and subject to full employee and employer Class 1 National Insurance. It does not matter whether the contract has a payment in lieu of notice clause, whether the notice is worked, or what the settlement agreement calls it. The old trick of labelling notice pay as compensation stopped working eight years ago and HMRC has been consistent about it since.
- Accrued holiday pay. Fully taxable, fully National Insurable.
- Outstanding wages, bonuses and commission. Fully taxable.
- Anything contractual. If the contract promises an enhanced redundancy payment, HMRC will still usually accept it as a termination award, but a payment that is really deferred reward for past work is earnings.
What a Redundancy Actually Costs an Employer
Take the 52 year old from the table: £45,000 salary, 15 years' service, three months' notice, 12 days of accrued holiday, and a £15,000 enhancement on top of the statutory amount.
| Element | Cost | Tax treatment |
|---|---|---|
| Statutory redundancy pay | £15,395.50 | Tax free |
| Enhanced payment | £15,000.00 | £395.50 of it taxable |
| Post-employment notice pay (3 months) | £11,250.00 | Fully taxable, Class 1 NI |
| Accrued holiday (12 days) | £2,076.92 | Fully taxable, Class 1 NI |
| Employer Class 1A at 15% on £395.50 | £59.33 | Employer cost |
| Employer Class 1 NI at 15% on notice and holiday | £1,999.04 | Employer cost |
| Total employer cash cost | £45,780.79 |
The statutory redundancy payment is £15,395.50 of a £45,780.79 bill, or roughly a third. Employers who budget for redundancy by running the government calculator and stopping there underestimate the cash outflow by a factor of three. The notice period is usually the biggest single item, and unlike the redundancy payment it carries employer National Insurance.
One practical note: the employer National Insurance above assumes the secondary threshold has already been used by the month's normal pay, which it almost always has by the time someone reaches a redundancy.
The Two Thresholds Are on a Collision Course
Here is the thing about redundancy tax that nobody writes about, and it is the most interesting number in this article.
The cap on a week's pay rises every April in line with September's retail prices index. The £30,000 exemption does not rise at all. It was £30,000 when the Income Tax (Earnings and Pensions) Act 2003 consolidated the rules, and it was carried across unchanged from the legislation before that. It has never been indexed.
Watch what that has done:
| Date | Weekly cap | Maximum statutory redundancy pay | As a share of £30,000 |
|---|---|---|---|
| 6 April 2014 | £464 | £13,920 | 46% |
| 6 April 2025 | £719 | £21,570 | 72% |
| 6 April 2026 | £751 | £22,530 | 75% |
In twelve years the statutory maximum has gone from under half the tax free threshold to three quarters of it. The 2026 uprating alone was 4.45 percent. Keep that pace and the maximum statutory redundancy payment passes £30,000 around 2033. At a more sedate 3 percent it takes until roughly 2036. Either way it is inside the working life of anyone reading this.
On the day that happens, a long serving employee receiving nothing but the bare statutory minimum, with no enhancement of any kind, will pay income tax on part of it. Their employer will pay Class 1A National Insurance on it. A payment Parliament designed as compensation for losing a job will have become taxable purely because a number was left alone for three decades.
This is fiscal drag, and it is the quiet sort that does not appear in any Budget. Uprating the £30,000 to the same index the weekly cap uses would cost the Exchequer very little today and would remove the problem permanently. Doing nothing is a decision to tax redundancy payments in the 2030s without ever having to announce it.
Failing to Consult Now Costs More Than the Redundancies
If an employer proposes 20 or more redundancies at one establishment within 90 days, collective consultation obligations kick in: 30 days' consultation for 20 to 99 redundancies, 45 days for 100 or more, plus notification to the Insolvency Service on form HR1.
Get that wrong and an employment tribunal can make a protective award. On 6 April 2026 the maximum protective award doubled, from 90 days' pay per affected employee to 180 days'.
The arithmetic is worth doing properly. Take 25 employees on £30,000 each, average age 35, five years' service apiece:
- Statutory redundancy pay: 5 weeks each at £576.92, which is £2,884.62 per person, £72,115 in total
- Maximum protective award: 180 days at £82.19 a day, which is £14,794.52 per person, £369,863 in total
The penalty for running a bad process is now more than five times the redundancy payments themselves. Before April it was two and a half times. This is the single largest change to redundancy economics in years and it received almost no coverage, because it sits in employment law rather than in payroll.
The protective award is also not the only exposure. Unfair dismissal claims run alongside it, and the two are cumulative. An employer who saves four weeks by skipping consultation is making a very poor trade.
Larger changes are coming. The government consulted in early 2026 on extending collective consultation so that redundancies are counted across the whole organisation rather than site by site, with implementation expected in 2027. Multi-site employers who currently stay under 20 at each location will need to recount, and the threshold itself has not been announced yet.
When the Cost Hits the Accounts
This is where redundancy stops being an HR question and becomes an accounting one, and it is where owner managed companies most often get caught out at the year end.
Under Section 28 of FRS 102, redundancy costs are recognised as an expense when the company becomes demonstrably committed to the terminations. Demonstrably committed means there is a detailed formal plan identifying at least the location, function and approximate number of employees affected, and there is no realistic possibility of withdrawing from it.
The practical consequences run in both directions.
Announcing before the year end pulls the cost into that year. A company that tells staff in March that a department is closing, and pays out in June, takes the whole expense in the March accounts. The cash has not moved. The profit and loss has.
Thinking about it is not enough. A board that has discussed redundancies, or announced that it is "reviewing the cost base", has no provision to make. A vague announcement that leaves management free to change its mind does not create a liability. Companies sometimes want the provision, because taking the pain in a bad year is convenient, and it is not available on those terms.
For corporation tax, redundancy payments made wholly and exclusively for the purposes of the trade are deductible in the normal way. Where a trade is ceasing, there is a specific relief that allows a deduction for statutory redundancy pay plus additional payments up to three times the statutory amount. That relief exists precisely because a ceasing trade has no future profits to set the cost against.
If you are planning redundancies near a year end, the timing of the announcement matters as much as the timing of the payment, and they are rarely the same date. It is worth a conversation before the announcement rather than after.
Directors and Their Own Companies
A great many company directors do not know they can claim statutory redundancy pay from their own company, and a fair number of accountants do not raise it.
A director who is a genuine employee of the company, and not merely an office holder, can be made redundant like anyone else. The test is whether there was a contract of employment, express or implied, and whether they actually worked in the business rather than simply holding the title. The Insolvency Service is explicit that holding considerable control over the company does not by itself disqualify a director.
Two things follow.
If the company is solvent, the redundancy payment comes out of company funds, is tax free up to the usual limits, and is deductible against corporation tax.
If the company is insolvent, a director employee can claim statutory redundancy pay, notice pay, holiday pay and arrears of wages from the Redundancy Payments Service, paid out of the National Insurance Fund. There is a six month window from the dismissal date to apply.
There is a sting, and it is the same one that shows up in statutory maternity pay. A week's pay for a director is based on salary, not on dividends. A director on the usual low salary of £12,570 has a week's pay of £241.73. Twenty years of service at age 45 or over gives 30 weeks, which is £7,251.92. The same director on a £40,000 salary would hit the £22,530 maximum.
We are not suggesting anyone pays themselves £40,000 in salary to improve a redundancy claim they hope never to make. The point is narrower: the low salary and high dividend structure has a real cost that is invisible until something goes wrong, and statutory redundancy pay joins sick pay, maternity pay and state pension credits on the list. It belongs in the annual remuneration decision rather than being discovered afterwards.
Six Things Employers Get Wrong
Setting the termination date without checking service anniversaries. A date two weeks earlier can cost the employee a week and a half of pay. It is a small kindness to check, and it is the sort of thing that decides whether a redundancy is remembered as fair.
Treating notice pay as part of the £30,000. It has not been since 2018. This is still the most common error in settlement agreements drafted without payroll input.
Forgetting employer National Insurance on the excess. Fifteen percent on everything above £30,000, agreed in a meeting and discovered at the payroll run.
Assuming the government calculator gives the total cost. It gives one line of a bill that is usually three times larger.
Running a 19 person redundancy to avoid collective consultation. Tribunals look at what was proposed, not at the final headcount, and the counting rules are about to widen across the whole organisation.
Leaving the accounting treatment until the year end. The announcement date decides which year the expense falls in. By the time the accounts are being prepared, that decision has already been made for you.
Our View
The weekly cap has drifted from a limit on outliers to the normal case, and that changes what the scheme is. At £39,052 the cap now sits below median full time pay. A system designed to pay people a proportion of what they earned has become one that pays most people a flat amount. That may be a defensible policy, but nobody chose it and nobody has argued for it. It happened because the cap is indexed to prices while wages moved differently, over enough years for the two to cross.
Freezing the £30,000 while uprating the cap every April is indefensible once you look at the numbers. Forty six percent to seventy five percent in twelve years is not a rounding issue, it is a policy on a timer. When the two figures meet in the early 2030s, statutory redundancy pay becomes taxable for people receiving the bare legal minimum, and it will be presented as a technicality rather than the tax rise it is. Index the exemption to the same measure as the cap and the problem disappears for good.
The 180 day protective award is the right change, and small employers have no idea it happened. Doubling the penalty for skipping consultation is a reasonable response to employers who treated the old 90 days as a cost of doing business. But it landed in April 2026 with almost no communication to the businesses most likely to fall foul of it, which are firms just crossing 20 redundancies for the first time and running the process on instinct. The gap between the size of the penalty and the awareness of it is uncomfortably wide.
The two year qualifying period does more damage than the rates do. Someone with 23 months of service gets nothing at all, then crosses a line and gets two weeks. Cliff edges produce bad behaviour on both sides, and the people affected are disproportionately those in newer, less secure jobs, who are also the most likely to be selected. A short taper would cost very little and would remove an obvious incentive to time dismissals.
Most of what makes a redundancy expensive is not in the statutory calculation. Notice, holiday, employer National Insurance, consultation time, the productivity of people waiting to find out and the recruitment cost when trade recovers. The statutory payment is the visible third. Employers who plan the whole number early, and who handle the process properly, generally spend less than employers who fixate on minimising the redundancy payment and then pay for it at a tribunal.
How IAK Can Help
Redundancy touches payroll, tax, employment law and the accounts at the same time, and the deadlines do not line up. The announcement date decides the accounting period. The termination date decides the service years. The final payslip decides the tax, and it cannot be corrected once the employee has gone.
Our payroll service handles terminations end to end: statutory redundancy calculated on the correct service and age bands, post-employment notice pay worked out properly, the split between exempt and taxable applied correctly in the final payslip, Class 1A reported where it is due, and the P45 issued on time.
On the accounting side we make sure the cost lands in the right period, that any provision is supportable when the auditors or HMRC ask, and that the corporation tax treatment is right, including the cessation of trade relief where a trade is winding down.
For owner managed companies, we treat statutory entitlements as part of the annual salary and dividend planning rather than an afterthought, because the salary level you set in April determines what you are worth in a redundancy, a long illness or a parental leave, and by then it is far too late to change.
If you are planning redundancies and want the full cost before you commit to it, or you are a director wondering whether you have a claim against your own company, contact us for a free consultation. You may also find our guides to statutory sick pay, statutory maternity pay, PAYE, National Insurance, tax codes and working capital useful, along with our salary calculator.
Sources
- Redundancy: your rights, statutory redundancy pay, GOV.UK, on the £751 weekly cap and £22,530 maximum from 6 April 2026, the age bands, the 20 year service cap and the two year qualifying period.
- The Employment Rights (Increase of Limits) Order 2026, setting the £751 limit on a week's pay under section 227(1) of the Employment Rights Act 1996 from 6 April 2026, and the 2025 Order setting the previous £719 limit, and the 2014 Order setting £464.
- Step 6: work out redundancy pay, Acas, on averaging a week's pay over the 12 weeks up to the date notice was given for employees with variable pay.
- Making staff redundant: redundancy pay, GOV.UK, on the employer's obligation to pay at or shortly after dismissal and on Redundancy Payments Service assistance where paying would make the business insolvent.
- Redundancy: your rights, tax and National Insurance, GOV.UK, on statutory redundancy pay under £30,000 not being taxable.
- EIM13880: post-employment notice pay formula, HMRC Employment Income Manual and NIM02555, on the PENP calculation under section 402D ITEPA 2003 and its treatment as earnings for Class 1 National Insurance from 6 April 2018.
- EIM13500: termination payments, threshold and exceptions, HMRC Employment Income Manual, on the £30,000 threshold under section 403 ITEPA 2003.
- Collective redundancy, increased protective award, business.gov.uk, on the maximum protective award rising from 90 to 180 days' pay from 6 April 2026 under the Employment Rights Act 2025.
- Make Work Pay: threshold for triggering collective redundancy obligations, GOV.UK, on the proposed organisation wide counting of redundancies, consulted on between February and May 2026 for implementation in 2027.
- Redundancies under FRS 102, ICAEW, on recognition of termination benefits when demonstrably committed, and the detailed formal plan requirement drawn from paragraph 21.11C of FRS 102.
- Check if you can apply for redundancy payments as a company director, GOV.UK, on directors claiming as employees and control over the company not being a disqualification.
- Redundancy pay, nidirect, on the separate Northern Ireland weekly limit of £783 from 6 April 2026.