Redundancy Pay Calculator

Comprehensive Guide to Redundancy Rights in the UK

Statutory Redundancy Pay: The Legal Minimum

The statutory redundancy payment is calculated under the Employment Rights Act 1996. To qualify you must have been continuously employed for at least two years. Temporary workers, those on fixed-term contracts, and employees who accept voluntary redundancy are all eligible. Agency workers who are employed (not self-employed) may also qualify after two years.

The calculation works as follows: for each complete year of service (up to a maximum of 20 years), you receive a number of weeks' pay based on your age during that year. The weekly pay is capped at £643 for redundancies occurring in 2025/26 (this cap typically increases each April).

Enhanced Redundancy Packages and Tax Treatment

Enhanced redundancy pay — anything above the statutory minimum — is taxable in exactly the same way as statutory pay. The critical threshold is £30,000 combined: the total of all tax-exempt termination payments (statutory + enhanced + any other qualifying payments) is exempt from income tax up to £30,000. Amounts above £30,000 are subject to income tax at your marginal rate. Importantly, there are NO employee National Insurance Contributions on any part of redundancy pay (above or below £30,000) — though Employer NICs apply on the amount above £30,000.

PILON: Pay in Lieu of Notice — A Separate Calculation

Since April 2018, PILON is treated as Post-Employment Notice Pay (PENP) and is always taxable as employment income regardless of whether your contract contains a PILON clause. PILON is subject to both income tax and employee National Insurance Contributions in full. It does NOT use the £30,000 tax-free threshold. This is a common source of confusion: a total redundancy package described as "£50,000" may include £15,000 PILON — only £30,000 of the remaining £35,000 (redundancy element) is tax-free.

Selection Criteria: Avoiding Discriminatory Redundancy

Employers must use fair and objective selection criteria when choosing who to make redundant. Selection criteria that can lead to discrimination claims include:

• Last in, first out (LIFO) — can indirectly discriminate against younger employees
• Part-time hours — can indirectly discriminate against women (who disproportionately work part-time)
• Pregnancy or maternity leave — automatically unfair if maternity is a factor in selection
• Disability-related absence — using sickness absence without adjusting for disability-related absence is discriminatory
• Trade union membership — automatically unfair

Fair criteria typically include: skills and experience, disciplinary record, attendance (excluding disability-related absence), performance, and flexibility/adaptability. Employers should document the scoring matrix and give employees the opportunity to challenge their scores.

Collective Redundancy: When 20+ Jobs Are at Risk

Where an employer proposes to dismiss 20 or more employees at one establishment within 90 days, collective consultation obligations apply under the Trade Union and Labour Relations (Consolidation) Act 1992:

• 20–99 redundancies: Minimum 30 days' consultation before first dismissal
• 100+ redundancies: Minimum 45 days' consultation before first dismissal
• The Insolvency Service must be notified using form HR1 (failure = criminal offence with unlimited fine)
• Consultation must be with elected employee representatives or recognised trade unions
• Protective Award of up to 90 days' gross pay per employee for failure to consult

TUPE: Redundancy When a Business Is Sold or Transferred

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees when a business or service is transferred to a new employer. Employees automatically transfer to the new employer on their existing terms and conditions. Dismissal connected to the transfer is automatically unfair unless there is an "economic, technical or organisational reason entailing changes in the workforce" (ETO reason). Redundancy made purely for the convenience of the transfer does not qualify as an ETO reason.

Settlement Agreements: COT3 vs Compromise Agreement

Many redundancy packages are finalised through a settlement agreement (formerly called a compromise agreement). A settlement agreement is a legally binding contract under which an employee gives up the right to pursue employment tribunal claims in return for a financial payment. Key points:

• The employee must receive independent legal advice for the agreement to be valid (employer typically contributes £200–£500 towards legal fees)
• A COT3 agreement is reached through ACAS conciliation and does not require a lawyer
• Payments under settlement agreements follow the same tax rules: up to £30,000 of genuine redundancy/termination pay is tax-free; PILON is always taxable
• Non-contractual ex gratia payments (i.e. payments made as a gift, not under contract) can be included within the £30,000 exemption

Right to Appeal and Employment Tribunal Claims

Employees have the right to appeal a redundancy decision. Employment tribunal claims for unfair dismissal must be brought within 3 months (less one day) of the effective date of termination. Before a tribunal claim can be lodged, ACAS Early Conciliation is mandatory. The time limit for claiming a protective award is also 3 months. Compensation for unfair dismissal includes a basic award (same formula as statutory redundancy pay) and a compensatory award (up to £115,115 or 52 weeks' pay, whichever is lower, for 2025/26).

Worked Examples: Redundancy Package Calculations