Severance Pay vs Redundancy Pay: UK Guide 2026/27

The four payments people commonly combine

“Severance package” is often used as shorthand for everything paid when employment ends. That wording can hide legally different components. Ask for an itemised statement that separates at least the following:

Statutory redundancy pay: the non-negotiable floor

An employee will normally qualify after two years' continuous service when the role is genuinely redundant. The statutory calculation weights each complete service year by the employee's age during that year: half a week's pay under 22, one week from 22 to 40, and one and a half weeks at 41 or over.

For redundancies taking effect on or after 6 April 2026, GOV.UK caps the weekly-pay input at £751, counts no more than 20 years, and gives a statutory maximum of £22,530. These are statutory figures with a stated effective date; an enhanced scheme can use actual pay or a more generous multiplier.

Severance: the contractual or negotiated layer

UK legislation does not give “severance pay” one universal formula. Employers use the term for enhanced redundancy, an ex-gratia payment, compensation for waiving claims, or the whole exit package. Identify the legal reason for each amount before deciding whether the offer is fair.

Check the employment contract, redundancy policy, collective agreement and previous company practice. A settlement offer may also reflect the value and risk of possible claims, seniority, restrictive covenants, bonus timing, benefits, references and the employer's desire for confidentiality or a clean departure.

How the £30,000 tax threshold actually works

The first £30,000 is not a blanket exemption for everything on the final statement. GOV.UK lists unpaid wages, holiday pay, bonuses and payments equivalent to notice as taxable earnings. The first combined £30,000 of qualifying statutory redundancy, additional severance or enhanced redundancy, and certain non-cash benefits may usually be tax free.

Payment in lieu of notice and post-employment notice pay remain taxable even if the agreement labels them “compensation”. Ask the employer for the proposed tax breakdown and obtain professional tax advice where the package is large or includes unusual benefits.

A practical way to check an offer

1. Calculate statutory redundancy independently using the correct effective-date cap.
2. Calculate contractual notice, then identify whether it will be worked, paid as PILON, or spent on garden leave.
3. Add wages, accrued holiday, earned bonus and expenses already due.
4. Identify the genuinely additional severance or ex-gratia amount.
5. Check tax treatment line by line instead of applying £30,000 to the total.
6. List non-cash terms: reference, announcement, legal fees, benefits, shares, confidentiality and restrictions.

When negotiation may be appropriate

A statutory redundancy calculation is not normally negotiated downward. The enhanced layer can be negotiated where the employer wants a settlement agreement or where there is uncertainty about consultation, selection, discrimination, notice, bonus, restrictive covenants, or another potential claim. Focus on specific evidence rather than asking for an arbitrary number.

Do not sign under artificial time pressure. A settlement agreement that waives statutory employment claims requires advice from a qualifying independent adviser. Ask for the proposed agreement, calculation schedule and employer legal-fee contribution in writing.

Related explanations

• Side-by-side severance comparison →
• Settlement agreement guide →
• Notice period law →

Frequently asked questions