UK Redundancy: Your Questions Answered

Statutory redundancy pay is a legal right under the Employment Rights Act 1996 (ERA 1996 s.135). If you have 2 or more years of continuous employment and your dismissal is by reason of redundancy, your employer is legally required to pay you. They cannot refuse, reduce, or waive the statutory minimum — any attempt to do so is unlawful.

If your employer refuses to pay, you have two options. First, you can write to them formally requesting payment and citing ERA 1996. Second, if they still refuse, you can bring a claim in the Employment Tribunal. The time limit is 6 months from the date your employment ended (an exception to the usual 3-month limit for employment tribunal claims). The Redundancy Payments Service can also make the payment on your employer's behalf if your employer is insolvent.

Note that your employer can lawfully refuse redundancy pay if you have fewer than 2 years' service, if you unreasonably refused an offer of suitable alternative employment, if you resigned rather than being dismissed, or if the dismissal was for gross misconduct in addition to a redundancy situation. Outside these specific circumstances, refusal is unlawful.

Statutory redundancy pay is tax-free provided your total qualifying termination payment does not exceed £30,000. The £30,000 threshold applies to the combined value of statutory redundancy pay, any enhanced (contractual) redundancy pay, and any ex gratia payment made on termination. Amounts within this threshold are exempt from both income tax and National Insurance contributions.

If your total termination payment exceeds £30,000, only the excess above £30,000 is subject to income tax (at your marginal rate). Importantly, National Insurance contributions do not apply to the excess — it is income tax only on amounts above the threshold.

Notice pay (or pay in lieu of notice — PILON) is always fully taxable and does not benefit from the £30,000 exemption. Since April 2018, all PILON is treated as earnings regardless of whether your contract contains a PILON clause. When calculating what falls within the threshold, PILON is kept separate. For example: if you receive £15,000 redundancy pay and £10,000 PILON, the redundancy pay is tax-free (within £30,000) and the PILON is fully taxable as earnings.

There is no specific statutory deadline for the exact day redundancy pay must be paid, but case law and ACAS guidance indicate it should be paid on or before your final day of employment, or as soon as reasonably practicable thereafter. Most employers include redundancy pay in the final payslip or make a separate payment on the termination date.

If your employer delays without explanation, write to them immediately requesting payment and providing your statutory redundancy pay calculation. Give them a reasonable deadline — 7–14 days is typical. If they still fail to pay, you can bring a claim in the Employment Tribunal. The time limit for a redundancy pay claim is 6 months from the date your employment ended, which is longer than the usual 3-month limit for unfair dismissal claims.

If your employer is insolvent and cannot pay, the government's Redundancy Payments Service (RPS) can pay statutory redundancy pay directly to you, up to the statutory cap. Contact the Insolvency Service if your employer has entered administration, liquidation, or receivership.

Being on sick leave does not protect you from genuine redundancy. If your role is genuinely redundant — the business is restructuring, the workplace is closing, or the need for your type of work has diminished — your employer can proceed with the redundancy process even while you are absent due to illness. You are still entitled to statutory redundancy pay, notice pay, and a fair redundancy process.

However, selecting you for redundancy because of your sick leave, or because of the illness causing it, is highly likely to be unlawful. If your illness constitutes a disability under the Equality Act 2010, selection for redundancy related to that illness could be disability discrimination — a claim with no qualifying period and uncapped compensation. Even where disability is not in play, using sick leave as a selection criterion in a redundancy pool is likely to make the dismissal unfair.

The practical challenge is attending redundancy consultation meetings while unwell. Your employer should make reasonable adjustments — offering telephone or video consultation, postponing meetings if you are genuinely unable to attend, or allowing a representative to attend on your behalf. Failure to make any accommodation could be used as evidence of unfair procedure at tribunal.

TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) provides two key protections for redundancy rights. First, under Regulation 7, dismissal connected to a TUPE transfer is automatically unfair — meaning your employer cannot make you redundant simply because the business has been sold or a service contract has changed hands. If dismissal is connected to the transfer, you can bring an unfair dismissal claim from day one (no 2-year qualifying period applies for automatically unfair dismissal).

Second, your continuous employment with your old employer transfers to the new employer. This means your service years count towards the 2-year qualifying period for unfair dismissal protection and towards any future redundancy pay calculation. If the new employer makes you redundant 6 months after the transfer, your redundancy pay is calculated using all your service years — including those with the old employer.

There is an exception: if the new employer can show an economic, technical, or organisational (ETO) reason entailing a change in the workforce — a genuine restructuring unconnected to the transfer itself — a redundancy may be lawful. Even then, a fair redundancy process (consultation, selection, notice) must be followed, and statutory redundancy pay is owed based on your full service including pre-transfer years.

Statutory redundancy pay in the UK is subject to two caps. First, the weekly pay cap — your actual weekly pay is capped at £751 (for the tax year 2026/27; this figure is reviewed each April). Even if you earn £2,000 per week, only £751 is used in the redundancy pay calculation. Second, the years of service cap — a maximum of 20 years is counted, regardless of how long you have actually worked for the employer.

The formula is: complete years of service (up to 20) × weekly pay (up to £751) × age multiplier (0.5 for under-22 service years, 1 for 22–40, 1.5 for 41 and over). The absolute maximum statutory payment is therefore £22,530: 20 years × £751 × 1.5. This maximum applies to someone who is 61+ with 20 or more years of service all worked aged 41 or over.

Enhanced redundancy schemes paid by employers are not subject to these statutory caps — they can use your actual salary and count more years of service. Enhanced payments above the statutory amount can still benefit from the £30,000 tax-free threshold on total termination payments.

Employees on maternity leave (and shared parental leave or adoption leave) cannot be selected for redundancy because they are on maternity leave, or because of their pregnancy or maternity. Doing so is automatically unfair dismissal and sex discrimination — claims with no qualifying period and, for discrimination, uncapped compensation.

Where a genuine redundancy situation exists and your role is affected, you have a special statutory right under the Maternity and Parental Leave etc. Regulations 1999: you must be offered any suitable alternative vacancy (if one exists) before it is offered to other employees at risk of redundancy. This priority right applies from the day you start maternity leave until the day you return. Your employer must actively look for suitable vacancies — they cannot simply invite you to apply alongside other redundant employees.

If there is no suitable alternative role and the redundancy is genuine, the dismissal can proceed even during maternity leave. You will still be entitled to statutory redundancy pay (provided you have 2+ years' service), notice pay (which continues to accrue even during unpaid maternity leave), and any enhanced maternity pay owed under your contract. The dismissal letter and P45 must be issued in the usual way.

Notice pay and redundancy pay are distinct entitlements — you are owed both. Statutory redundancy pay compensates you for losing your job after long service. Notice pay (or pay in lieu of notice — PILON) compensates you for the notice period your employer is required to give before terminating your employment. Both are payable on redundancy.

Statutory minimum notice is: 1 week after 1 month's employment, then 1 additional week per complete year of service, up to a maximum of 12 weeks after 12 or more years. Your contract may provide a longer notice period — your employer must apply whichever is greater. If you are not required to work your notice period, you must receive PILON instead, which is fully taxable as earnings.

If your employer fails to give you either notice or PILON, you have a wrongful dismissal claim (breach of contract). You can bring this at the Employment Tribunal (claims up to £25,000) or in the county court. Note that PILON does not benefit from the £30,000 tax-free threshold that applies to redundancy pay — it is always subject to income tax and National Insurance.

Being made redundant does not affect the pension rights you have already accrued. For defined contribution (DC) pensions — the most common type for private sector workers — your pot remains invested as it was. You simply stop making contributions and your employer stops contributing. You become a 'deferred member' and the pot grows (or falls) with investment until you draw it down from age 55 (rising to 57 from 2028).

For defined benefit (final salary or career average) pensions, your accrued pension is protected and revalued in line with inflation up to a cap (currently CPI, capped at 2.5% for pre-2009 accrual). You will receive a deferred pension statement showing your projected pension at normal retirement age. You can usually transfer the deferred value to a personal pension (though taking independent financial advice is required for transfers over £30,000).

During your redundancy notice period (or the period covered by PILON), pension contributions should continue as normal — including employer contributions — if you are working the notice period. If you receive PILON, whether pension contributions continue depends on your contract and scheme rules. Auto-enrolment continues while you remain employed during notice; it ceases on your termination date.

There is no law that prevents an employer from making you redundant and then offering you a new job — even in the same or similar role. However, the redundancy must be genuine at the time it was declared. If you are made redundant and then rehired into an identical role within a short period (often cited as a few months in HMRC guidance), this raises a strong inference that the redundancy was not genuine — and may mean you were entitled to statutory redundancy pay that the employer is trying to avoid paying.

HMRC looks closely at 'phoenix' redundancies — situations where an employer makes staff redundant to avoid paying ongoing employment costs, then rehires them as self-employed contractors or re-engages them through a new entity. If HMRC concludes the redundancy was a sham, the employer may face tax penalties and the employee may have NI contribution gaps.

If you are made redundant and genuinely rehired into a new role, a new period of continuous employment begins. You lose the service years built up before the redundancy for most purposes — though if your new contract includes a continuity preservation clause, or if the break is less than 1 week, statutory rules may preserve some continuity. Always check what your new contract says about treatment of previous service.

For employees with fixed hours and fixed pay, a week's pay is straightforward: it is your gross weekly wage — but capped at £751 for the tax year 2026/27. The cap is reviewed by the government each April in line with inflation. If you earn £800 per week, only £751 is used in the calculation.

For employees with variable pay — where pay varies depending on hours worked, commission, or other variable elements — a week's pay is calculated as the average of the 12 weeks' pay actually paid in the 12 weeks before the notice was given (or the effective date of termination if no notice was given). Weeks in which no pay was received (for example, unpaid leave) are ignored and an earlier week is substituted to make up the 12-week period.

For employees with no fixed working hours (zero-hours or irregular hours), the average is taken over the 12 weeks before the calculation date. Overtime and commission that are guaranteed and regularly paid may be included; purely discretionary bonuses that are not regular are generally excluded. For part-time workers, a week's pay reflects actual part-time earnings, not a full-time equivalent.

Even where a genuine redundancy situation exists, the selection of which employees are made redundant must be fair. Unfair selection grounds fall into three broad categories. First, automatically unfair selection: selecting an employee because of pregnancy or maternity, trade union membership or activities, whistleblowing, asserting a statutory right, or exercising rights under TUPE or working time legislation. These grounds are automatically unfair with no 2-year qualifying period required.

Second, discriminatory selection: using criteria that disproportionately affect employees with a protected characteristic (age, disability, sex, race, religion, sexual orientation, etc.) without objective justification. Using attendance records as a selection criterion, for example, can indirectly discriminate against disabled employees if their absences relate to their disability.

Third, procedurally unfair selection: defining the redundancy pool too narrowly to exclude obvious alternatives, failing to apply selection criteria consistently or objectively, not consulting properly with the employees in the pool, or not scoring employees fairly against the agreed criteria. An employer who has already decided who will be made redundant before beginning consultation, and uses the process as a formality, is likely to be found to have acted unfairly.

When your employer becomes insolvent, you are treated as a preferential creditor in the insolvency proceedings — which means you rank ahead of most unsecured creditors for certain employment-related debts. However, there are caps. You can recover up to 8 weeks' unpaid wages (capped at £800/week — the same cap that applies to statutory redundancy pay), up to 6 weeks' accrued holiday pay, and any unpaid notice pay up to the statutory minimum.

In addition, you can make a claim to the Redundancy Payments Service (RPS) — a government scheme funded by the National Insurance Fund — to recover statutory redundancy pay, pay in lieu of notice (capped at the statutory minimum), up to 8 weeks' unpaid wages, holiday pay, and any unreimbursed notice pay. Claims are made online at gov.uk. The RPS typically processes claims within 6 weeks.

If your employer owes you more than the statutory caps (for example, if your salary is above £800/week or you are owed many weeks of pay), you may file for the remainder as an unsecured creditor in the insolvency — but in practice, unsecured creditors typically receive very little or nothing. If you believe your employer has been fraudulently stripping assets before insolvency, you can report concerns to the Insolvency Service.