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Facing redundancy can be overwhelming, with many concerns running through your mind. Whether voluntary or compulsory, understanding how to calculate your redundancy payment is crucial. Knowing your entitlements ensures you receive the correct amount and helps you to make informed decisions about your future.

In this article, we’ll break down how redundancy pay is calculated and how legal advice can help you maximise your settlement.

Statutory vs. Enhanced Redundancy Pay

When facing redundancy, it’s important to understand the difference between statutory and enhanced redundancy pay. Statutory redundancy pay is the minimum amount your employer must legally pay if you’ve worked for them for at least two years. It is calculated based on your age, length of service and weekly wage (up to a government-set cap). 

However, some employers offer enhanced redundancy pay which exceeds the statutory minimum. This may be outlined in your employment contract, company redundancy policy or negotiated as part of a settlement agreement (also known as redundancy compromise agreements).

Enhanced redundancy payments are often given to long-serving employees or as an incentive for voluntary redundancy. 

If you’re unsure about your entitlements, we can help you understand your options and ensure you receive the best possible outcome.

How to Calculate Your Statutory Redundancy Payment?

Statutory redundancy pay is calculated using a formula based on three key factors:

  • Your age
  • Length of service (up to a maximum of 20 years)
  • Weekly pay (capped at the government-set limit)

The calculation works as follows:

  • Under 22 years old – Half a week’s pay for each full year worked.
  • Aged 22 to 40 – One week’s pay for each full year worked.
  • Over 41 years old – One and a half weeks’ pay for each full year worked.

For example, if you are 45 and have worked for 10 years, your redundancy pay follows the statutory formula. If you earn above the weekly cap, the maximum allowable amount per week will be applied.

  • Ages 35 – 40 → 6 years at one week’s pay per year → 6 weeks’ pay
  • Ages 41 – 44 → 4 years at one and a half weeks’ pay per year → 6 weeks’ pay

Total redundancy pay = 6 weeks’ pay + 6 weeks’ pay = 12 weeks’ pay

To get an accurate figure for your circumstances, use the Government Redundancy Calculator.

What is the Statutory Week’s Pay for Calculating Redundancy?

As of April 6, 2024, the statutory cap on a week’s pay for calculating redundancy and unfair dismissal basic awards in the UK is £700. 

This cap is subject to annual review, with new limits typically announced in early April each year. 

Factors That can Affect Your Redundancy Payment

Several factors can influence the final amount of redundancy pay you receive. In addition to a statutory redundancy payment, your employer may offer enhanced redundancy pay. This may be through a contract or redundancy settlement agreement. 

Other factors, such as whether you are on furlough, working part-time or have breaks in service, can also affect your final redundancy amount. Seeking legal advice can help you understand your entitlements and ensure you receive the correct payment.

Do I Pay Tax on my Redundancy Payment?

Tax implications can impact your payment: statutory redundancy pay under £30,000 is tax-free. However, any amount above this threshold is subject to income tax and possibly National Insurance contributions. 

Additional compensation, such as pay in lieu of notice (PILON), bonuses, accrued holiday pay or ex gratia redundancy payments, is usually taxable as earnings. If your redundancy package includes these elements, your employer will deduct tax before payment. It’s important to check your redundancy agreement to understand what is taxable. Seek financial or legal advice if you are unsure.

What if You’re Offered a Redundancy Settlement Agreement?

You may be offered a redundancy settlement agreement. This allows employers to offer a lump sum in exchange for waiving legal claims. It can provide a better financial package than statutory redundancy, but it also means you give up your right to challenge the redundancy later. Because of this, UK law requires you to get independent legal advice before signing.

Ensure you get the Best Outcome From Redundancy

There is a lot to think about when redundancy is on the cards, whether compulsory or voluntary. Financial concerns are often at the forefront of your mind. So, if you’re not sure if you’re getting the redundancy pay you deserve, get in touch.

Our expert team at Settlement Agreement Advice can help you understand your entitlements and negotiate a better outcome. Book a consultation with our redundancy settlement agreement solicitors today.

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