Statutory Redundancy Pay: How to Calculate It Correctly (UK 2026)

Getting redundancy pay calculations wrong costs employers money, damages trust, and can trigger tribunal claims. The figures changed on 6 April 2026, and using outdated numbers is one of the most common mistakes we see.

This guide walks you through the statutory redundancy pay formula step by step, with worked examples covering real scenarios. If you are running a redundancy process, you need these numbers right.

Who Qualifies for Statutory Redundancy Pay?

Before you calculate anything, confirm the employee actually qualifies. The eligibility criteria are straightforward:

• Employee status. Only employees qualify. Workers, contractors, and agency staff do not. If you are unsure about someone's status, check the employment status tests carefully.
• Two years' continuous service. The employee must have at least two years of continuous employment with you, calculated from their start date to the date redundancy takes effect.
• Genuine redundancy situation. The role must be disappearing or the workplace closing. Redundancy pay does not apply if you are dismissing someone for performance, conduct, or any other non-redundancy reason.

Employees on fixed-term contracts of two years or more also qualify if the contract ends due to redundancy and is not renewed.

Important for 2027 planning: The Employment Rights Act 2025 will introduce day one unfair dismissal rights from 2027. However, the two-year qualifying period for statutory redundancy pay remains unchanged. These are separate rights.

The 2026 Statutory Redundancy Pay Rates

From 6 April 2026, the key figures are:

| Component | 2025/26 Rate | 2026/27 Rate | |-----------|-------------|-------------| | Weekly pay cap | £700 | £751 | | Maximum years counted | 20 | 20 | | Maximum statutory redundancy pay | £21,000 | £22,530 |

The weekly pay cap applies regardless of actual earnings. An employee earning £2,000 per week gets capped at £751 for calculation purposes.

The maximum statutory redundancy pay of £22,530 applies to someone aged 41 or over with 20+ years of service (20 years x £751 x 1.5 = £22,530).

The Redundancy Pay Formula: Step by Step

The calculation uses three variables: age during each year of service, weekly pay (capped at £751), and complete years of continuous service (capped at 20).

Step 1: Determine Weekly Pay

For employees on a fixed salary, divide the annual gross salary by 52. If the result exceeds £751, use £751.

For employees with variable pay (commission, overtime, irregular hours), calculate the average weekly pay over the 12 weeks before the calculation date. Weeks with no pay are excluded and replaced with earlier weeks.

Step 2: Count Complete Years of Service

Work backwards from the date of dismissal. Only complete years count. If someone has worked 7 years and 11 months, you count 7 years.

The maximum is 20 years. An employee with 30 years of service only gets credit for 20.

Step 3: Apply the Age-Based Multipliers

This is where it gets slightly involved. For each complete year of service, you apply a different multiplier depending on how old the employee was during that year:

• Under 22: 0.5 week's pay per year
• 22 to 40: 1 week's pay per year
• 41 and over: 1.5 weeks' pay per year

You work backwards from the dismissal date, applying the multiplier that matches the employee's age during each year of service.

Step 4: Add Up the Total

Multiply each year's entitlement by the weekly pay figure, then add everything together. That gives you the statutory redundancy payment.

Worked Examples

These examples use the 2026/27 weekly pay cap of £751.

Example 1: Simple Calculation

Sarah, age 35, 6 years' service, earning £38,000 per year

Weekly pay: £38,000 / 52 = £730.77 (under the £751 cap, so use £730.77)

All 6 years fall in the 22-40 age band, so each year gets 1 week's pay.

Calculation: 6 years x 1 x £730.77 = £4,384.62

Example 2: Crossing the Age 41 Threshold

David, age 44, 10 years' service, earning £52,000 per year

Weekly pay: £52,000 / 52 = £1,000. This exceeds the cap, so use £751.

Working backwards from age 44:

• Ages 41-44 (4 years at 1.5 weeks): 4 x 1.5 x £751 = £4,506
• Ages 34-40 (6 years at 1 week): 6 x 1 x £751 = £4,506

Wait. David is 44 with 10 years' service, so he started at 34. Working backwards:

• Age 44, 43, 42, 41: 4 years in the 41+ band = 4 x 1.5 = 6 weeks
• Age 40, 39, 38, 37, 36, 35: 6 years in the 22-40 band = 6 x 1 = 6 weeks

Total weeks: 12

Calculation: 12 x £751 = £9,012

Example 3: Maximum Payout Scenario

Margaret, age 61, 25 years' service, earning £65,000 per year

Weekly pay: £65,000 / 52 = £1,250. Capped at £751.

Service capped at 20 years. Working backwards from age 61:

• Ages 41-61 (all 20 counted years fall in the 41+ band): 20 x 1.5 = 30 weeks

Calculation: 30 x £751 = £22,530 (the statutory maximum)

Example 4: Younger Employee Crossing the Age 22 Threshold

Tom, age 25, 4 years' service, earning £28,000 per year

Weekly pay: £28,000 / 52 = £538.46 (under the cap)

Working backwards from age 25:

• Ages 22-25: 4 years in the 22-40 band = 4 x 1 = 4 weeks

Actually, Tom started at 21. Let's recalculate:

• Ages 22-25: 3 years in the 22-40 band = 3 x 1 = 3 weeks
• Age 21: 1 year in the under-22 band = 1 x 0.5 = 0.5 weeks

Total weeks: 3.5

Calculation: 3.5 x £538.46 = £1,884.61

Common Calculation Mistakes Employers Make

Using Last Year's Weekly Pay Cap

The cap changes every April. Using the wrong year's figure means underpaying (which triggers claims) or overpaying (which costs you money). Always check which rate applies at the date of dismissal, not the date you started the redundancy process.

Forgetting to Work Backwards by Age

The age multiplier applies to the employee's age during each year of service, not their current age. An employee who is 42 now with 5 years of service gets the 41+ rate for only 2 of those years (ages 41 and 42), and the 22-40 rate for the other 3.

Counting Incomplete Years

Only complete years of continuous service count. 4 years and 364 days is 4 years for calculation purposes.

Including Breaks in Service

Continuous service must be genuinely continuous. Gaps break the chain unless they fall under specific exceptions (maternity leave, sick leave, temporary cessation of work under certain conditions). If an employee left and came back, you generally count from the most recent start date.

Confusing Statutory and Enhanced Redundancy Pay

Many employers offer enhanced redundancy packages above the statutory minimum. The statutory calculation is the legal floor. Whatever your policy says, you cannot pay less than the statutory amount.

Enhanced Redundancy Pay: What Employers Need to Know

You are not limited to statutory redundancy pay. Many employers offer enhanced packages that exceed the statutory minimum. Common enhancements include:

• Higher weekly pay multiplier: Using actual weekly pay instead of the capped amount
• Higher age multipliers: For example, 2 weeks per year for all ages instead of the tiered system
• Longer service recognition: Counting more than 20 years
• Flat-rate top-ups: Adding a fixed sum on top of the statutory calculation

If your employment contracts or staff handbook include an enhanced redundancy policy, that policy becomes contractual. You must honour it. Check your employee handbook before making any promises about redundancy terms.

Tax Treatment of Redundancy Pay

Statutory redundancy pay is tax-free. Enhanced redundancy pay is also tax-free up to a combined total of £30,000 (including statutory). Anything above £30,000 is taxed as earnings through PAYE.

This £30,000 threshold includes all termination payments, not just redundancy pay. If you are also paying for notice not worked (a payment in lieu of notice, or PILON) and the contract does not include a PILON clause, that payment counts towards the £30,000 limit. Contractual PILON is always taxable.

Redundancy Pay and Notice Periods

Statutory redundancy pay is separate from notice pay. Employees are entitled to both.

The statutory notice period during redundancy is:

• 1 week for service between 1 month and 2 years
• 1 week per complete year for service between 2 and 12 years
• 12 weeks for service of 12 years or more

Contractual notice periods may be longer. You must pay whichever is greater.

Employees can work their notice period, be placed on garden leave, or receive a payment in lieu of notice. The approach affects tax treatment, so take care with how you structure the payment.

Collective Redundancy: Additional Obligations

If you are making 20 or more employees redundant at one establishment within a 90-day period, collective redundancy consultation rules apply. From April 2026, the protective award for failure to consult has doubled to 180 days' pay, up from the previous 90-day maximum.

This is a significant financial risk. A failure to follow collective consultation rules properly does not just affect the redundancy pay calculation. It adds an entirely separate liability on top.

Settlement Agreements and Redundancy

Some employers offer settlement agreements alongside redundancy payments, particularly in sensitive situations or where they want to avoid potential tribunal claims. The redundancy pay forms part of the overall settlement sum, and the same £30,000 tax-free threshold applies to the combined package.

How the Redundancy Process Affects Pay Obligations

The redundancy pay calculation is mechanical. But the process surrounding it matters enormously. A poorly run process exposes you to unfair dismissal claims, even if the redundancy itself is genuine and the pay is calculated correctly.

For a full walkthrough of the process, see our guide on how to run a fair redundancy process. Getting the process right protects you from claims that would cost far more than the redundancy payment itself.

Employer Compliance Checklist

Use this before finalising any redundancy payment:

1. Confirm eligibility. Two years' continuous service as an employee.
2. Check the weekly pay cap. Use £751 for dismissals from 6 April 2026.
3. Calculate using the correct age bands. Work backwards from the dismissal date.
4. Cap service at 20 years.
5. Check for enhanced redundancy terms in contracts and handbooks.
6. Calculate notice pay separately. Statutory or contractual, whichever is higher.
7. Consider tax treatment. Statutory is tax-free. Enhanced is tax-free up to £30,000 combined.
8. Issue a written statement. Provide a breakdown showing how you calculated the payment.
9. Pay on the agreed date. Late payment damages trust and can lead to breach of contract claims.
10. Keep records. Store the calculation, consultation notes, and payment records for at least six years.

Not sure your redundancy process and documentation meet current requirements? Our EmployerKit Audit checks your policies against 2026 standards and flags gaps before they become problems.

Frequently Asked Questions

Q: Does statutory redundancy pay apply to employees made redundant before 6 April 2026?

The weekly pay cap that applies is the one in force at the date of dismissal. If the dismissal date falls before 6 April 2026, the previous cap of £700 applies. If it falls on or after 6 April 2026, the new £751 cap applies. The relevant date is the termination date, not the date you started the consultation process.

Q: Can an employee claim more than statutory redundancy pay at tribunal?

If your contracts or policies provide for enhanced redundancy pay and you fail to honour those terms, the employee can claim the enhanced amount as a breach of contract. The tribunal can also award a "basic award" for unfair dismissal, which is calculated using the same formula as statutory redundancy pay. However, statutory redundancy pay is offset against the basic award, so the employee does not receive both.

Q: Is redundancy pay affected by part-time working?

Statutory redundancy pay is based on the employee's actual weekly pay, not a full-time equivalent. A part-time employee earning £300 per week gets their calculation based on £300 per week (which is under the cap). The multipliers and years of service work the same way.

Q: What happens if I cannot afford to pay statutory redundancy?

You cannot legally avoid paying statutory redundancy pay because of financial difficulty. If your business is insolvent and genuinely cannot pay, employees can claim statutory redundancy pay from the National Insurance Fund via the Redundancy Payments Service. The government pays the statutory amount and becomes a creditor of the business.

Q: How do I calculate redundancy pay for employees with variable hours or pay?

For employees with variable pay, calculate the average weekly pay over the 12 complete weeks before the calculation date. Exclude any weeks where no pay was earned and replace them with earlier weeks. For zero-hours contract workers, the same principle applies: average the last 12 paid weeks. This can produce unexpected results if the employee had a particularly busy or quiet period, so check the figures look reasonable.

Q: Does service before a TUPE transfer count?

Yes. Under the Transfer of Undertakings (Protection of Employment) Regulations, continuous service transfers with the employee. If someone worked 5 years for the previous employer and 3 years for you, their continuous service for redundancy purposes is 8 years.