Is accrued holiday pay taxable when made redundant?

Yes. Accrued but untaken holiday pay is employment income and fully subject to income tax and National Insurance. It does not benefit from the £30,000 redundancy tax-free threshold.

Is notice pay taxable in a redundancy package?

Yes. Under PENP rules since April 2018, notice pay and PILON are fully taxable as employment income including NI, regardless of whether they are contractual or not.

What is the £30,000 tax-free threshold in redundancy?

The first £30,000 of qualifying termination payments — which typically includes statutory redundancy and ex-gratia amounts — is tax-free. Notice pay and holiday pay do not count toward this threshold as they are earnings.

How is accrued holiday calculated on redundancy?

Untaken holiday is paid at the same rate as regular earnings. The calculation is daily rate multiplied by days owed. Daily rate is annual salary divided by 260 working days (or 5 times weekly pay divided by 5).

What is an ex-gratia payment in redundancy?

An ex-gratia payment is an additional sum paid at the employer's discretion, above any contractual or statutory entitlement. It often forms part of a settlement agreement and can benefit from the £30,000 tax-free threshold.

What enhanced redundancy multiplier is common?

Common enhanced multipliers are 1.5 times statutory, 2 times statutory, or 3 times statutory. Some employers use a flat multiple of salary or a more complex formula. The default statutory multiplier is 1.

Can redundancy pay and ex-gratia together use the full £30,000 threshold?

Yes. The £30,000 threshold applies to the combined total of qualifying termination payments, including statutory redundancy, any enhanced element above statutory, and ex-gratia payments. Notice pay and holiday pay are excluded from the threshold calculation.

Does redundancy pay affect pension contributions?

Statutory redundancy pay is not earnings and does not count toward pension contributions. Notice pay and holiday pay may count as pensionable earnings depending on your scheme rules.

What happens if my employer offers enhanced redundancy as part of a settlement agreement?

Enhanced redundancy in a settlement agreement is common. The agreement should specify which amounts are redundancy pay, which are PILON, and which are ex-gratia. Tax treatment depends on correct characterisation. Independent legal advice is required before signing.

Is there NI on any part of a redundancy package?

Redundancy pay (statutory and qualifying enhanced/ex-gratia) is NI-exempt regardless of amount. Notice pay and holiday pay are subject to NI as earnings. This difference can significantly affect your net package.

How do I calculate my weekly pay for redundancy purposes?

Your weekly pay for statutory redundancy is your gross weekly earnings, capped at £700 for 2025/26. If your pay varies, a 12-week average is used. Overtime and expenses that are not guaranteed may be excluded.

What happens to pension contributions during notice?

If you work your notice, pension contributions continue as normal. If you receive PILON, pension contributions during the unworked notice period may cease depending on your contract and scheme rules. Some employers continue pension contributions during PILON by agreement.

Do I need a solicitor to check my redundancy package?

If a settlement agreement is involved, independent legal advice is legally required for the waiver to be valid. Even without a settlement agreement, legal advice on complex packages with enhanced elements or disputed claims is strongly recommended.

What is the maximum total tax-free redundancy payment?

The maximum statutory redundancy is £21,000. The total qualifying termination payment can be up to £30,000 tax-free (including ex-gratia). There is no upper limit on the total redundancy package, but amounts above £30,000 qualifying threshold attract income tax.

What is the redundancy pay cap for 2025/26?

The weekly pay cap for statutory redundancy is £700 and the maximum statutory redundancy payment is £21,000. These apply to the redundancy pay element only, not to notice pay or holiday pay which use your actual weekly wage.

Is a garden leave clause the same as notice pay?

Garden leave is when you work your notice period but do not attend the workplace. You continue to receive full salary and benefits. It is different from PILON, where employment ends immediately and the notice period is paid as a lump sum.

Can my employer deduct anything from my redundancy package?

Employers can deduct tax and NI from taxable elements (notice pay, holiday pay, taxable excess). They cannot deduct statutory redundancy from other amounts without your consent. Outstanding loans or advances may sometimes be offset if contractually agreed.

How does service above 20 years affect my redundancy?

Statutory redundancy pay is capped at 20 years of service. Years beyond 20 are disregarded for the statutory formula. However, enhanced redundancy schemes may count all years of service if the employer's policy does not apply the 20-year cap.

Is there a redundancy payment when a company is taken over?

Under TUPE (Transfer of Undertakings), employment automatically transfers to the new employer on the same terms. Redundancy pay is not automatically triggered by a transfer. If redundancy follows a TUPE transfer, continuity of service is preserved for calculation purposes.

What is a compromise agreement versus a settlement agreement in redundancy?

These are the same thing with different names. The term was changed from compromise agreement to settlement agreement in 2013. Both describe a binding contract waiving employment claims, requiring independent legal advice before signing.

Do I lose redundancy rights if I am dismissed for misconduct during the notice period?

If an employee commits gross misconduct during the statutory notice period, the employer may be able to dismiss without notice or redundancy pay. Legal advice is important before taking or opposing such a position.

What if my employer refuses to pay statutory redundancy?

You can apply to an employment tribunal within 6 months of the payment due date. If your employer is insolvent, you can claim statutory redundancy from the government Redundancy Payments Service via the Insolvency Service.

Does taking voluntary redundancy affect unemployment benefits?

Accepting voluntary redundancy generally does not affect entitlement to Universal Credit or New Style JSA in the same way as voluntarily leaving a job. HMRC and DWP treat voluntary redundancy as a genuine job loss, not as voluntary unemployment.

Is statutory redundancy pay included in the P45?

Statutory redundancy pay is typically not included on the P45 as it is exempt from PAYE. Taxable elements such as notice pay and holiday pay are included. Your employer's payroll team should confirm what appears on your P45.

What counts as continuous service for redundancy purposes?

Continuous service is unbroken employment with the same employer or connected employers. Career breaks, certain periods of maternity or paternity leave, and layoffs do not necessarily break continuity, but resignation and rehire does. Check with an employment lawyer if continuity is disputed.

Can redundancy pay be paid in instalments?

Statutory redundancy pay is usually paid as a lump sum on termination. Paying it in instalments is possible by agreement but unusual. Some enhanced packages spread payments across tax years to reduce income tax liability.

Does sickness affect statutory redundancy calculation?

Periods of sickness absence do not break continuity of service. The weekly pay used is the contractual weekly pay, not reduced sick pay received during absence. Disability-related absences may have additional protections under the Equality Act.

What if I have a dispute about the amount of my redundancy?

If you believe your statutory redundancy calculation is wrong, you can ask your employer for a written statement of how it was calculated. If still in dispute, you can apply to an employment tribunal within 6 months of the due date.

How are long-serving employees affected by the 20-year statutory cap?

The 20-year cap means that very long service does not increase statutory redundancy indefinitely. An employee with 30 years service and the same age profile as one with 20 years receives the same statutory amount. Enhanced schemes without the cap can be significantly more valuable for long-serving staff.

What is the impact of redundancy on my credit score?

Redundancy itself does not directly affect your credit score. However, if redundancy leads to missed payments on credit obligations, those missed payments will appear on your credit file. It is important to contact lenders proactively if your income is affected.

Can I be made redundant while on maternity leave?

Yes, but with strong protections. Employees on maternity leave have enhanced protection and must be offered any suitable alternative vacancies before other employees. Selecting someone for redundancy because of pregnancy or maternity leave is automatic unfair dismissal and may be sex discrimination.

Does redundancy affect my pension entitlement?

Redundancy does not directly reduce State Pension entitlement if you have enough qualifying years. Occupational or workplace pension rights built up to the date of redundancy are preserved. Some defined benefit schemes have specific rules on early leavers.

What is a protective award in collective redundancy?

If an employer fails to comply with collective consultation obligations when making 20 or more redundancies in 90 days, an employment tribunal can award up to 90 days pay per employee as a protective award. This is separate from redundancy pay.

Is there redundancy pay for self-employed workers?

No. Statutory redundancy pay only applies to employees, not to self-employed contractors or freelancers. Some workers in intermediate categories (workers, as opposed to employees) also have no entitlement to statutory redundancy.

What does it mean to be placed at risk of redundancy?

Being placed at risk means your employer has identified your role for potential redundancy and you are entering the formal consultation process. Being at risk does not mean you will definitely be made redundant — consultation is a legal process that should be genuinely open to alternatives.

What is bumping redundancy?

Bumping is when an employee whose role has not been made redundant is displaced by another employee whose role has been made redundant, and who would otherwise have to be dismissed. The employee who is bumped receives redundancy pay. Bumping is permissible but not obligatory.

How long should a redundancy consultation last?

There is no fixed minimum for individual consultation, but it must be genuine and meaningful. For collective redundancies (20+ employees in 90 days), a minimum of 30 days applies, or 45 days for 100+ employees.

Can a fixed-term contract employee claim redundancy pay?

Yes, if the fixed-term employee has at least 2 years of continuous service and their contract ends because of redundancy (not simply expiry for a non-redundancy reason). Fixed-term employees cannot be treated less favourably than permanent employees in comparable roles.

What is the selection pool in redundancy?

The selection pool is the group of employees from whom redundancies will be selected. Employers must define the pool fairly and apply objective, non-discriminatory selection criteria to identify who will be made redundant. A flawed pool or unfair criteria can make the dismissal unfair.

What is an alternative employment offer in redundancy?

Before making someone redundant, employers should consider and offer any suitable alternative employment. If the employee unreasonably refuses a suitable alternative, they may lose their entitlement to statutory redundancy pay. Suitability and reasonableness are assessed individually.

Can I work for a competitor during my redundancy notice period?

Whether you can work during notice depends on your contract and any garden leave or restrictive covenants. If you are on PILON or working notice without a restriction, you may be free to work elsewhere. Garden leave typically restricts outside employment during the notice period.

Does enhanced redundancy pay count as pensionable pay?

Typically no. Redundancy payments are not pensionable earnings under most occupational scheme rules. However, some employer-specific schemes treat enhanced payments differently. Check your pension scheme rules or ask your employer's HR department.

What is the trial period for alternative employment?

When offered suitable alternative employment, employees can take a 4-week statutory trial period. If the new role is not suitable, the employee can reject it within the trial period and still receive redundancy pay. Longer trial periods can be agreed for retraining purposes.

Can pregnancy be a factor in redundancy selection?

No. Using pregnancy or maternity as a selection criterion is automatic unfair dismissal and sex discrimination. Pregnant employees and those on maternity leave have additional protections throughout the redundancy process.

What happens to share options in a redundancy situation?

The treatment of share options on redundancy depends entirely on the option scheme rules. Some schemes allow early exercise on redundancy, some cancel unvested options, and some allow a period to exercise. Check your scheme documentation carefully.

Is redundancy pay calculated on full pay or capped pay?

Statutory redundancy pay is calculated using weekly pay capped at £700. Notice pay and holiday pay use your actual weekly rate without the statutory cap. Enhanced redundancy may also use your actual pay if the employer's scheme ignores the statutory cap.

What is constructive dismissal in a redundancy context?

If an employer fundamentally changes your terms and conditions during a restructure without consent, you may be able to resign and claim constructive dismissal, which can carry the same rights as redundancy. This is a complex area and legal advice is essential.

Total Redundancy Package Calculator 2025/26

Q: What is included in a total redundancy package?

A full redundancy package typically includes statutory redundancy pay (or enhanced if offered), notice pay or PILON, accrued but untaken holiday pay, and any additional ex-gratia payment negotiated as part of the settlement.

Q: How is enhanced redundancy taxed?

The enhanced element above statutory can count as a qualifying termination payment and benefit from the £30,000 threshold alongside statutory pay. Any total qualifying amount above £30,000 is taxed at the marginal income tax rate with no NI.

Key 2025/26 Figures

Weekly pay cap for statutory redundancy: £700
Maximum statutory redundancy: £21,000
Tax-free threshold for qualifying termination payments: £30,000
Notice pay (PENP): fully taxable — income tax + NI
Holiday pay: fully taxable as earnings
Redundancy pay (statutory + ex-gratia): NI-exempt always

Total Redundancy Package Calculator

Age at redundancy date

Years of continuous service

Weekly gross pay £

Contractual notice period (months)

Notice being worked?

Accrued holiday untaken (days)

Enhanced redundancy multiplier (1=statutory)

Ex-gratia payment £ (above contractual)

Income tax band

Package Components (Gross)

Statutory redundancy pay—

Enhanced redundancy pay (×multiplier)—

Notice pay (PILON or worked)—

Accrued holiday pay—

Ex-gratia payment—

Total gross package—

Tax Analysis

Qualifying termination payments (redundancy + ex-gratia)—

Tax-free amount (up to £30,000)—

Taxable excess above £30,000—

Income tax on excess redundancy—

Income tax on notice pay (PENP)—

Income tax on holiday pay—

NI on notice pay (8%)—

NI on holiday pay (8%)—

NI on redundancy pay£0 — NI exempt

NET TOTAL PACKAGE (take-home)—

Statutory redundancy uses age-band formula capped at £700/week and £21,000 maximum. Notice pay and holiday pay are taxable as earnings. Redundancy and ex-gratia up to £30,000 combined are tax-free. This calculator is for guidance only.

Understanding Your Full Redundancy Package

A redundancy package typically has several distinct components, each with different tax treatment. Understanding how each element is taxed is essential to knowing your true net take-home — which can differ substantially from the gross headline figure.

The four main components are: statutory (or enhanced) redundancy pay, notice pay, accrued holiday pay, and any ex-gratia element. Statutory redundancy and qualifying ex-gratia payments benefit from the £30,000 tax-free threshold. Notice pay and holiday pay are employment income and do not benefit from this threshold.

Statutory vs Enhanced Redundancy

Statutory redundancy is calculated using the age-band formula with a weekly pay cap of £700 for 2025/26. The multiplier depends on age: 0.5 weeks per year under 22, 1 week per year aged 22-40, and 1.5 weeks per year aged 41 and over. Service is capped at 20 years and the total is capped at £21,000.

Enhanced redundancy is calculated by applying a multiplier to the statutory figure. A multiplier of 2 means double statutory. Some employers cap the enhanced element or apply different rules. The enhanced amount above statutory can still count as a qualifying termination payment toward the £30,000 threshold alongside any ex-gratia element.

Notice Pay: PILON vs Working Notice

Whether you work your notice or receive PILON makes no difference to gross pay, but PILON is subject to the PENP rules — meaning it is immediately treated as employment income with income tax and NI deducted. Working notice also attracts full tax and NI, but via the normal PAYE payroll rather than as a lump sum.

The notice pay figure in this calculator uses your actual weekly pay (not the £700 cap), since notice pay is earnings and the statutory cap does not apply to notice entitlement.

Holiday Pay

Accrued but untaken holiday must be paid on termination. It is calculated at your normal daily rate — effectively weekly pay divided by 5 days. Holiday pay is taxable as earnings, subject to both income tax and NI, just like ordinary salary.

Ex-Gratia and the £30,000 Threshold

Ex-gratia payments made as part of termination — above any statutory or contractual entitlement — can benefit from the £30,000 tax-free threshold. The threshold applies to the combined total of statutory redundancy, any enhanced amount that qualifies as a termination payment, and ex-gratia. Notice pay and holiday pay do not count toward the threshold.

Amounts above £30,000 combined are taxable at your marginal income tax rate. There is no National Insurance on any redundancy or qualifying termination payment regardless of amount.

Frequently Asked Questions

What is included in a total redundancy package?

Statutory or enhanced redundancy pay, notice pay (PILON or worked), accrued holiday pay, and any ex-gratia element. Each has different tax treatment.

Is holiday pay taxable in redundancy?

Yes. Accrued holiday pay is earnings and fully subject to income tax and NI. It does not benefit from the £30,000 threshold.

Is notice pay taxable?

Yes. Under PENP rules, all notice pay and PILON are taxable as employment income including NI since April 2018.

What does the £30,000 threshold cover?

The threshold applies to qualifying termination payments — statutory redundancy, ex-gratia, and certain enhanced redundancy amounts. Notice pay and holiday pay are excluded.

Is there NI on redundancy pay?

No. All qualifying redundancy and termination payments are NI-exempt regardless of amount. Only notice pay and holiday pay attract NI.

How is enhanced redundancy taxed?

Enhanced redundancy counts as a qualifying termination payment. Combined with statutory and ex-gratia, the first £30,000 is tax-free. Any excess above £30,000 is taxed at your marginal rate with no NI.

How is accrued holiday calculated?

Daily rate × days owed. Daily rate is weekly pay ÷ 5. This uses your actual pay, not the statutory £700 cap.

What is an ex-gratia payment?

A discretionary payment above contractual and statutory entitlement. It counts toward the £30,000 tax-free threshold when properly characterised as a termination payment.

Can I negotiate my redundancy package?

Yes. Statutory redundancy is a floor. Enhanced terms, additional notice pay, ex-gratia elements, and settlement agreement compensation can all be negotiated above statutory minimums.

What is the maximum statutory redundancy pay?

£21,000 for 2025/26 — based on 20 years at 1.5 weeks × £700/week cap.

Do I need legal advice on my redundancy package?

If a settlement agreement is involved, independent legal advice is required by law. For complex packages with enhanced terms or disputed claims, legal advice is strongly recommended.

When should I receive my redundancy pay?

Statutory redundancy must be paid on the agreed date or termination date, whichever is later. If not paid, you can claim through an employment tribunal or the Insolvency Service.

Author: Mustafa Bilgic (MB)
Published: 1 January 2025
Last updated: 10 March 2026