Finance⏱ 5 min read
How Redundancy Pay Is Calculated in the UK
Statutory redundancy pay follows a fixed formula based on age, weekly pay, and years of service. Here is the exact calculation, what counts as a week's pay, and enhanced redundancy rights.
Statutory redundancy pay is a legal minimum -- many employers offer enhanced redundancy on top. Knowing the statutory calculation tells you whether you are being fairly treated and what you are entitled to.
The Statutory Redundancy Pay Formula
Each complete year of continuous employment earns:
- Under age 22: 0.5 week's pay per year
- Age 22-40: 1 week's pay per year
- Age 41+: 1.5 weeks' pay per year
Maximum qualifying years: 20
Weekly pay cap (2024/25): £643/week
Statutory Redundancy Pay = sum of:
(years under 22 x 0.5) + (years 22-40 x 1.0) + (years 41+ x 1.5)
x weekly pay (capped at £643)
Maximum possible statutory pay: 20 years x 1.5 weeks x £643 = £19,290
Worked Example
Employee: age 45, 12 years continuous service, earns £800/week
Weekly pay capped at £643
Breakdown of 12 years:
Age 33-40: 8 years at 1.0 week/year = 8.0 weeks
Age 41-45: 4 years at 1.5 weeks/year = 6.0 weeks
Total: 14.0 weeks x £643 = £9,002
At weekly pay below cap (£600/week):
Age 33-40: 8 x 1.0 x £600 = £4,800
Age 41-45: 4 x 1.5 x £600 = £3,600
Total: £8,400
Note: count only complete years.
11 years 11 months = 11 complete years.
What Counts as a Week's Pay
For employees with fixed hours and pay:
A week's pay = normal gross weekly earnings
For employees with variable hours (zero hours, commission):
A week's pay = average weekly pay over the 12 weeks immediately
before the date redundancy notice was given
Include: basic salary, shift premium, regular overtime (if guaranteed)
Exclude: discretionary bonuses, expenses, tips
If paid monthly: multiply by 12 and divide by 52
Monthly salary £3,000: weekly pay = £3,000 x 12 / 52 = £692.31
Capped at £643 for statutory purposes
Enhanced Redundancy Pay
Many employers offer more than statutory minimum:
Common enhancements:
- Higher weekly pay cap (or no cap at all)
- Higher multipliers per year (e.g. 2 weeks per year instead of 1.5)
- No age-weighting (flat 1 week per year for all ages)
- Notice period pay (statutory is 1 week per year, max 12 weeks)
- Ex-gratia payment (goodwill sum above formula)
Your employment contract and any collective agreement may specify
a more generous calculation. These form legally binding contractual rights.
Tax treatment:
First £30,000 of redundancy pay is income tax free
(Applies to both statutory and enhanced redundancy pay)
Above £30,000: taxed as earnings in the year received