Redundancy Pay Explained
How statutory redundancy pay is calculated, and the £30,000 tax-free threshold
If you're made redundant, there's a legal minimum your employer has to pay you, worked out by a fixed formula, and a genuine tax-free slice on top of whatever they actually pay you, statutory or otherwise. This page covers how the statutory minimum is calculated and where the tax-free line sits.
How statutory redundancy pay is calculated
If you're made redundant and have at least 2 years' continuous service, your employer must pay at least the statutory minimum, a fixed number of weeks' pay per full year of service, set by your age during that particular year, not your age when you're made redundant.
| Age during that year of service | Pay per full year |
|---|---|
| Under 22 | 0.5 week's pay |
| 22 to 40 | 1 week's pay |
| 41 and over | 1.5 weeks' pay |
Two caps apply on top of the formula: only your most recent 20 years of service count, and your weekly pay is capped at £751 even if you earn more, so a high earner's statutory payout is worked out on £751 a week regardless of their real salary. Combined, these caps put a hard ceiling of £22,530 on any statutory redundancy payment, however long someone's service or however high their pay.
The most important thing to get your head round is this: if you worked through more than one age band, each year of service is paid at that year's rate, not a single rate applied to your whole length of service.
Worked example: crossing from one age band to another
| Calculation | Redundancy pay |
|---|---|
| Correct: 5 years at 22–40 (£600 × 1.0 × 5), then 5 years at 41+ (£600 × 1.5 × 5) | £7,500 |
| Wrong: applying the final age's rate to all 10 years | £9,000 |
Aged 45 with 10 years' service on £600/week, having started the job at 35.
Redundancy Pay Calculator
Enter your age, years of service, and weekly pay to estimate your statutory redundancy pay.
Add an ex-gratia top-up on top of statutory redundancy pay
Many employers pay more than the statutory minimum. The £30,000 tax-free threshold applies to the two combined, not to statutory redundancy pay alone.
Enter your age, years of service, and weekly pay. Years of service can't exceed your age.
The £30,000 tax-free threshold
The first £30,000 of a termination payment is tax-free. This consists of statutory redundancy pay plus any further payment your employer chooses to add on top, such as an ex-gratia "top-up". Anything above that is taxed as income at your normal marginal rate, and your employer pays Class 1A National Insurance (not you) on the excess.
Because the maximum possible statutory redundancy payment (£22,530) sits comfortably under the £30,000 exemption, statutory redundancy pay on its own is never taxed. It only starts to matter once an employer adds a large enough payment on top.
Worked example: a payment that straddles the threshold
| Line item | Amount |
|---|---|
| Statutory redundancy pay | £7,500 |
| Employer's ex-gratia top-up | £25,000 |
| Total termination payment | £32,500 |
| Tax-free (within the £30,000 exemption) | £30,000 |
| Taxable, at the recipient's marginal rate | £2,500 |
If a redundancy payment is large enough to push above the threshold, paying some of the excess into a pension instead of taking it as cash is a legitimate way to reduce the tax due on it. This is the same process covered in Reducing Your Tax Through Pensions, just triggered by a one-off payment rather than ongoing salary.
This page explains general redundancy pay rules and is not personalised advice; see the disclaimer. It doesn't cover non-statutory contractual redundancy schemes (which can differ significantly from the statutory minimum) or Statutory Redundancy Payments for employers who are insolvent. See also Statutory Pay Explained for other examples of statutory pay such as sick, maternity, paternity, adoption, and shared parental pay.