Statutory redundancy pay is one of those areas where employers assume they know the rules until they do not. The calculation looks mechanical. The reality is that most mistakes happen in the detail: the wrong weekly pay figure, a miscount of qualifying service, a contractual entitlement that silently overrides the statutory minimum. Those mistakes become tribunal claims. 

This article sets out who qualifies, how the calculation works, where errors tend to occur, and what the consequences are when employers get it wrong. If a redundancy process is already in progress, the time to check these numbers is now, not after the settlement agreement is signed. 

Who qualifies for statutory redundancy pay? 

Entitlement to statutory redundancy pay depends on three conditions: the employee must be an employee (not a worker or self-employed contractor), they must have been genuinely made redundant, and they must have at least two years of continuous service at the date their employment ends. 

That two-year threshold is unforgiving. Only complete years of service count. Where the employer dismisses with less than statutory notice, the relevant date is extended by the statutory minimum notice for the two-year test and the years counted (section 145(5) of the Employment Rights Act 1996), so pay in lieu of notice can lift an employee over the line. Businesses running tight redundancy timelines need to check these dates carefully.  Long-term sickness absence does not break continuous service, and our ill health redundancy guide covers what an absent employee is owed if the role disappears.

Part-time employees qualify on identical terms to full-time employees. There is no pro-rating of the entitlement based on hours worked. 

Worker misclassification is a growing source of exposure. If someone has been engaged as an independent contractor but works set hours, under direction, without any right to send a substitute, an employment tribunal will likely treat them as an employee. The label on the contract does not change that analysis. Businesses that have restructured and let go of long-term contractors without paying redundancy should seek advice on this if they have not already. 

How statutory redundancy pay is calculated 

The calculation combines three variables: the employee’s age, their gross weekly pay (subject to a statutory cap), and their length of continuous service (capped at 20 years). 

The age weighting works as follows: 

• For each complete year of service under the age of 22: half a week’s pay 

• For each complete year of service between 22 and 40: one week’s pay 

• For each complete year of service at 41 or over: one and a half weeks’ pay 

Only complete years of service count. Partial years are disregarded entirely, which matters for employees approaching a milestone anniversary.

The weekly pay figure is capped by statute and revised each April by the government. Using an outdated cap is one of the most common errors businesses make when they carry out redundancies infrequently. The figure typically comes from last year's precedent letter or an old HR template that nobody has updated. The current rate should always be confirmed at gov.uk before the calculation is run. 

A worked example: an employee aged 44, with 11 years of service, earning £950 gross per week. Assume the current weekly pay cap is £751, the cap in force on the relevant date, normally the last day of employment, for dates on or after 6 April 2026. A year of service counts at 1.5 weeks only if the employee was 41 or over throughout it. 

The earliest 8 years of service (8 years at the 22 to 40 band): 8 × £751 = £6,008 

The last 3 years, all at age 41 or over (3 years at the 41+ band): 3 × 1.5 × £751 = £3,379.50 

Total statutory redundancy pay: £9,387.50 

The maximum statutory redundancy payment is 30 weeks’ pay at the capped weekly rate. The absolute maximum changes each April alongside the weekly cap. 

Use The HR Doctor's redundancy pay calculator to run the figures for your own employees based on the current April 2026 rates.

The weekly pay figure: where most calculation errors happen 

“Weekly pay” for redundancy purposes is defined in the Employment Rights Act 1996 and is not always the same as the figure on the payslip. 

For employees on fixed hours and fixed pay, the calculation is straightforward: the gross weekly wage. For employees whose pay varies, including commission earners, shift workers, and those on irregular or zero-hours arrangements, the week’s pay is the average over the 12 weeks ending with the calculation date. That date is when notice would have been given had the employer given only the statutory minimum notice and it had expired on the relevant date. Where pay does not vary with the work done, the week’s pay is the contractual week’s pay. 

Guaranteed overtime must be included. This is overtime the employer is contractually obliged to offer and the employee is obliged to work. Where the employee has contractual normal working hours, only guaranteed overtime counts. Overtime the employee could choose to work does not. The holiday pay case law applies to holiday pay under the Working Time Regulations 1998, not to a redundancy payment. Where the employee has no normal working hours, as with many zero-hours arrangements, the week’s pay is the average weekly pay over the 12 weeks (section 224 of the Employment Rights Act 1996). 

The practical consequence: an employer who calculates redundancy pay using the basic hourly rate for an employee who consistently works guaranteed overtime will underpay. An underpayment is a question about the right to or amount of a redundancy payment, which goes to an employment tribunal under section 163 of the Employment Rights Act 1996. The tribunal can also award compensation for financial loss caused by the non-payment (section 163(5)). 

When must statutory redundancy pay be paid? 

Statutory redundancy pay is due when employment ends or on the final pay date, or on a later date agreed in writing (Acas). In practice, some employers pay it with the final salary. Others issue a separate payment shortly after. Neither approach is inherently problematic, provided the payment is not unreasonably delayed. 

Redundancy pay is separate from notice pay. An employer cannot offset one against the other without specific contractual authority. Payment in lieu of notice, garden leave payments, and statutory redundancy pay are distinct obligations. Conflating them in the final pay calculation is a recurring source of disputes. 

You do not usually pay tax on the first combined £30,000 of statutory redundancy pay, enhanced redundancy and other severance payments (GOV.UK). The exemption applies to the statutory sum itself. If the business pays an enhanced amount on top, the total package counts toward that threshold, not just the statutory element. Tax advice should be taken where the total termination payment approaches or exceeds £30,000. 

Enhanced redundancy schemes and contractual obligations 

Many businesses operate enhanced redundancy schemes that pay more than the statutory minimum. These may be written into the employment contract, embedded in a staff handbook, or set out in a standalone policy. 

If the scheme is contractual, meaning it forms part of the terms and conditions of employment either expressly or through long-standing custom and practice, the employer must apply it. Paying the statutory minimum instead is a breach of contract. Paying an enhanced scheme to some employees and not others can lead to a discrimination claim if the difference is linked to a protected characteristic such as sex, race, disability or age, and you cannot justify it. Age has a specific rule: you may pay different enhanced amounts where each is calculated on the same basis, using the statutory formula with the uplifts the Equality Act allows (Schedule 9 paragraph 13). That rule covers age only. 

Where the policy sits outside the contract, whether it is binding depends on how it is worded and how consistently it has been applied. A policy that says “the company will pay” sits very differently from one that says “the company may, at its discretion, consider paying.” Tribunals look at the substance. If employees have been told to expect a particular package, or if it has been applied uniformly over years, a court may treat it as contractually binding regardless of what the document says. 

Businesses that have grown, restructured, or acquired other companies often carry enhanced schemes they have forgotten about or cannot readily locate. If the last redundancy round was five years ago and that precedent is being used as a template, it needs to be checked against current employment terms before anything is communicated to affected employees. 

What happens when employers get statutory redundancy pay wrong? 

Underpaying or failing to pay statutory redundancy pay gives the employee a right to bring a claim in the Employment Tribunal. A claim goes to an employment tribunal under section 163 of the Employment Rights Act 1996, within six months of the relevant date (section 164). The employee needs the two years’ service that gave the right to the payment. 

Tribunal awards for redundancy pay follow the statutory formula. If the employer has underpaid, the tribunal decides the right amount and can award compensation for loss caused by non-payment. The hearing is rarely complex. The employer calculates one figure; the claimant calculates another; the tribunal applies the statutory formula. The employer either got it right or did not. 

The wider business risk is what the dispute signals. Employees who believe they have been shortchanged on redundancy pay look more closely at everything else: the selection criteria, the scoring, the consultation process. A dispute that begins over a £600 underpayment in redundancy calculation can open the door to an unfair dismissal claim worth £15,000 or more. It changes the relationship and frequently the employee’s instructions to their solicitor. 

Under the Employment Rights Act 2025, the compliance environment for employers has tightened further. Day-one rights have been extended, procedural obligations strengthened, and the bar for fair dismissal raised in several respects. A redundancy process that would have passed scrutiny two years ago may not survive tribunal examination today. 

Statutory redundancy pay: common questions 

Can we deduct money the employee owes us from their redundancy pay? 

Pay the statutory sum in full, on time, with the written statement, and recover any debt separately. Deducting from it risks a claim and gives the employee a grievance. Where the business pays enhanced redundancy pay, a contractual clause may allow offset against the enhanced element, provided it does not reduce the payment below the statutory minimum. 

Can we make redundancy pay conditional on signing a settlement agreement? 

No. Statutory redundancy pay is a legal entitlement. It cannot be withheld pending the signature of a settlement agreement. A settlement agreement can address enhanced payments, ex-gratia sums, and other elements of a package, but the statutory sum must be paid regardless. 

What if the business cannot afford to pay statutory redundancy pay? 

Insolvency does not extinguish the obligation. Employees can apply to the Redundancy Payments Service to recover statutory redundancy pay from the National Insurance Fund if the employer is insolvent, or if the employer has refused or failed to pay and the employee has taken all reasonable steps, other than legal proceedings, to recover it (section 166). The government recovers what it can from the insolvency estate. Directors should take specialist advice on personal liability in this scenario, which varies depending on the insolvency structure. 

Does a period of furlough or reduced hours affect the redundancy pay calculation? 

Furlough periods under the Coronavirus Job Retention Scheme count toward continuous service. However, if the employee was on reduced pay during furlough and the redundancy date falls within or shortly after the furlough period, the 12-week averaging calculation for variable-pay employees could produce a lower weekly pay figure. Government guidance issued during the pandemic stated that employers could choose to calculate redundancy pay based on normal pre-furlough wages. Whether this was contractually required depended on the furlough agreement. Any business reviewing legacy redundancies from this period should check what was agreed in writing. 

Is your redundancy process legally sound? 

The HR Doctor's Compliance Confidence Kit covers the full redundancy lifecycle: calculation checks, documentation review, process compliance, and live advisory support when cases get complicated. Whether a redundancy is coming or already underway, do not rely on a template from the last time. Book a free 30-minute discovery call to talk through what your business needs.