How is UK statutory redundancy pay calculated?

Statutory redundancy pay is calculated based on complete years of continuous service (capped at 20 years), age during each year of service, and weekly pay (capped at £700 per week for 2024/25 and 2025/26). Employees under 22 receive 0.5 week's pay per year; employees aged 22 to 40 receive 1.0 week's pay per year; and employees aged 41 and over receive 1.5 weeks' pay per year. The maximum statutory redundancy payout is £21,000.

Who qualifies for statutory redundancy pay in the UK?

To qualify for statutory redundancy pay, you must be legally classed as an employee and have been working continuously for your employer for at least 2 full years (104 weeks). Independent contractors and self-employed workers are not eligible for statutory redundancy pay.

Is redundancy pay taxable in the UK?

Under Section 401 of ITEPA 2003, the first £30,000 of genuine redundancy or ex-gratia termination payment is completely exempt from UK Income Tax and National Insurance. Any redundancy payout exceeding £30,000 is subject to Income Tax at your marginal rate (20%, 40%, or 45%). Crucially, employees pay NO National Insurance on redundancy payments, even on the excess above £30,000.

Are PILON and accrued holiday pay tax-free?

No. Payment in Lieu of Notice (PILON / PENP) and payment for accrued but untaken holiday are treated as normal employment earnings. They are subject to both standard Income Tax and Employee National Insurance deductions and do not qualify for the £30,000 tax exemption.

Can you pay redundancy money into a pension to avoid tax?

Yes. If your employer agrees, you can arrange a pension salary sacrifice for severance pay exceeding the £30,000 tax-free exemption. Contributing the excess directly into your registered workplace pension avoids 40% or 45% Income Tax, subject to your remaining £60,000 Annual Allowance and any carry-forward.

Employment Rights Act 1996 • 2025/2026 Rules

UK Statutory Redundancy Calculator

Accurately compute your statutory redundancy entitlement with the £700 weekly cap, age multiplier tiers, enhanced contractual severance, the £30,000 tax-free exemption, and pension sacrifice rollover.

1 Employment & Salary Details Statutory Cap: £700/week

Current Age at Redundancy Date 42 years old

18 yrs 30 yrs 41 yrs (1.5x threshold) 50 yrs 65+ yrs

Full Years of Continuous Service 8 full years

0 yrs (no eligibility) 2 yrs (statutory min) 10 yrs 20 yrs (statutory cap)

Gross Annual Salary (£)

Gross Weekly Pay (£)

Statutory rate applied: £700.00

Quick Presets:

2 Enhanced Package & Other Payments

£30k Tax Free Rule

Enhanced / Contractual Redundancy Pay (£) Includes or tops up statutory

Enter your total severance offer if your employer provides enhanced contractual redundancy above the statutory legal minimum.

Notice Pay in Lieu (PILON) (£)

100% Taxable (PAYE + NI)

Accrued Untaken Holiday (£)

100% Taxable (PAYE + NI)

Estimated Marginal Income Tax Band on Severance Excess (>£30k)

Redundancy pay over £30,000 is taxed at your top income tax rate. Zero employee NI is deducted from redundancy pay.

Pension Rollover Sandbox (Tax Shield)

Save 40% Tax

If your total redundancy compensation exceeds £30,000, you can ask your employer to pay the excess directly into your pension scheme via salary sacrifice before leaving, avoiding income tax altogether.

Sacrifice Severance into Pension (£) £0

Estimated Immediate Tax Saved: £0

Total Net Take-Home 100% Tax Free

£8,400.00

Total funds arriving directly into your bank account after statutory tax treatment.

Total Redundancy Pay £8,400.00

Total Tax Deductions £0.00

Statutory Calculation

12.0 weeks

Age 41 and over (1.5 weeks/yr): 2 yrs × 1.5 = 3.0 wks

£2,100.00

Age 22 to 40 (1.0 week/yr): 6 yrs × 1.0 = 6.0 wks

£4,200.00

Under Age 22 (0.5 week/yr): 0 yrs × 0.5 = 0.0 wks

£0.00

Statutory Redundancy Pay (capped at £21,000): £6,300.00

Settlement Breakdown & Tax

Statutory Redundancy Element: £6,300.00

Enhanced Severance Top-Up: £0.00

Notice Pay (PILON) & Untaken Holiday: £0.00

Total Severance Package: £6,300.00

Tax-Free Allowance Utilised (Max £30k): -£6,300.00

Taxable Severance (Above £30k): £0.00

Income Tax on Excess Severance: £0.00

PAYE Tax & NI on Notice / Holiday: £0.00

Employee NI on Redundancy Pay: £0.00 (Exempt)

Net Payout to Your Bank: £6,300.00

UK Statutory Rights Reminder

Statutory redundancy pay is a legally guaranteed minimum under the Employment Rights Act 1996. Your employment contract or settlement agreement cannot pay less than this amount unless you have less than 2 continuous years of service or fall under specific statutory exceptions.

UK Statutory Redundancy Multipliers (ERA 1996)

By law, your redundancy entitlement is calculated using your age at each full year of service, working backwards from your redundancy termination date up to a lifetime continuous limit of 20 years.

Age Bracket	Statutory Entitlement per Full Year	Max Cap per Year (£700/wk)	Key Conditions
Under Age 22	0.5 week's pay	£350.00	Requires min 2 years continuous employment
Ages 22 to 40	1.0 week's pay	£700.00	Standard multiplier for core working years
Age 41 and Over	1.5 weeks' pay	£1,050.00	Max statutory payout tier

Max Length of Service Capped at 20 years. Years worked beyond 20 years are excluded from statutory pay.

Weekly Pay Limit Capped at £700 per week (from 6 April 2024 through 2025/26).

Max Total Statutory Pay £21,000.00 (20 years × 1.5 weeks × £700).

Understanding the £30,000 Tax Exemption

Under Section 401 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), payments made in connection with the termination of employment receive a special statutory tax exemption:

✓ First £30,000 100% Tax-Free: Genuine statutory redundancy and ex-gratia compensation for loss of office up to £30k is exempt from both Income Tax and National Insurance.
✓ No Employee NI on Excess: Crucially, even on redundancy pay exceeding £30,000, employees pay zero Class 1 National Insurance. You only pay Income Tax at your marginal rate.
✗ Notice Pay (PILON) Excluded: Post-Employment Notice Pay (PENP) and untaken accrued holiday are classified as taxable earnings and do not qualify for the exemption.

Pension Salary Sacrifice Strategy

If your severance agreement includes enhanced compensation pushing your total redundancy pay over £30,000, you face a 40% or 45% tax deduction on the surplus.

How to Execute a Redundancy Pension Sacrifice:

Before signing your settlement agreement, request that your employer pays the non-exempt portion (e.g. £15,000 above £30k) as an employer pension contribution directly into your workplace or SIPP pension.

Immediate Result: You preserve £6,000 to £6,750 that would have otherwise been deducted in PAYE taxes!

Frequently Asked Questions

How do I calculate continuous service if I had a break in employment?

Continuous service begins on your official start date and ends on the date your employment contract is legally terminated. Statutory maternity, paternity, adoption, parental leave, and statutory sick leave do not break continuous service. Unauthorised absences or voluntary breaks of one week or more usually break continuity unless protected by a statutory bridging agreement or TUPE business transfer.

What happens if my weekly pay was variable (overtime, commissions, bonuses)?

If your pay varied from week to week (for instance, shift workers, sales staff with contractual commissions, or staff with irregular overtime), your weekly pay is calculated as the average of your gross earnings over the 12 weeks immediately preceding the redundancy calculation date. The £700 weekly cap still applies to this 12-week average.

Can an employer pay statutory redundancy if they go into insolvency or liquidation?

If your employer becomes insolvent, liquidated, or enters administration, you can claim your statutory redundancy pay directly from the UK government via the National Insurance Fund (Insolvency Service). The Insolvency Service will pay up to the legal statutory limits (£700/week and 20 years service) as well as statutory notice pay and arrears of wages.

Is redundancy pay counted as income for Universal Credit or other benefits?

Redundancy pay is treated as capital (savings), not earned income, for Universal Credit purposes. If your total capital and savings exceed £16,000, you are ineligible for Universal Credit. If your savings are between £6,000 and £16,000, your monthly Universal Credit award is reduced by a tariff income of £4.35 for every £250 above £6,000.

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