Redundancy pay

If you’ve been in the same job for at least two years, your employer has to pay you redundancy money. The legal minimum is called ‘statutory redundancy pay’, but check your contract – you might get more.

Are you entitled to redundancy pay?

If you’ve worked continuously for your employer for two years or more and they make you redundant, you have the right to redundancy pay.

Statutory redundancy pay and contractual redundancy pay

Statutory redundancy pay is the legal minimum.

Your employer can’t pay you less than this.

But they might have to pay you more if your employment contract says so. This is called ‘contractual redundancy pay’.

This could mean a bigger lump sum or getting a payout, even if you’ve worked there for less than two years.

If there’s no mention of redundancy in your contract or staff handbook, assume you’ll get the legal minimum.

Check your employment contract or staff handbook to find out about your contractual redundancy pay.

How much redundancy pay will you get?

How much statutory redundancy pay you get depends on:

  • how long you’ve been in the job
  • the age you were in each year you worked there, and
  • your current salary – up to a maximum of £544 a week in 2021/22 (£566 in Northern Ireland).

There is an overall maximum amount of redundancy pay you can get. This is capped at £16,320 in 2021/22 (£16,980 in Northern Ireland) – even if your actual earnings are higher. The maximum length of service taken into account for redundancy payment calculation is 20 years.

Only complete years of service count, and service has to be continuous.

Here’s what you should get:

Your age
Redundancy pay

Under 22

Half a week’s pay for each year of service

22 to 40

A week’s pay for each year of service

Over 41

A week and a half’s pay for each year of service

Calculating redundancy pay – An example

Sally (aged 31) has worked part-time as a hairdresser for Kurl Up and Dye for ten years and two months, earning £200 a week.

She’s just been made redundant.

She gets:

  •  half a week’s pay for the year she worked when she was under 22 = £100
  • nine week’s pay for the nine years she worked aged 22 to 40 = £1,800.

So, overall, she gets £1,900.

Pay in lieu of notice and holiday pay

Pay in lieu of notice

When you’re made redundant your employer must give you

  •  a statutory minimum of one week’s notice for up to two years’ service, and
  •  one weeks’ notice for each year you’ve worked for them (up to a maximum of 12 weeks’ notice).

But check your employment contract as there might be a longer notice period that your contractually entitled to.

You could be expected to carry on working during your notice period, but you might be allowed to leave earlier and sometimes immediately. In this case, you’ll get pay in lieu of notice (PILON). This is effectively compensation from your employer for ending your contract early.

All contractual or non-contractual PILON payments are now subject to Income Tax and National Insurance deductions.

This means all basic pay you were deemed to have received is taxed in the same way, regardless of whether you worked during your notice period. Termination payments over and above those, which are deemed PILONs, would still benefit from the £30,000 tax and National Insurance contribution exemption.

Holiday pay

Don’t forget holiday pay. If you have holiday owed, your employer has to pay you for it or let you take it before you leave.

So, find out if you have any holiday owing.

£30,000 is tax free

When you’re made redundant, you’re likely to get a mix of redundancy pay (which is compensation for your job loss) and other amounts owed to you.

The first £30,000 of your redundancy pay is tax free – regardless of whether you get the legal minimum or a more generous payout from your employer.

You won’t have to pay National Insurance on it either.

But holiday pay, pay in lieu of notice and any other amounts that are pay for your work rather than compensation for the job loss, are taxed as pay.

What if your employer’s gone bust?

If your employer goes out of business, you’ll still get statutory redundancy pay and holiday pay owed to you. But you’ll have to claim them from the Insolvency Service rather than from your employer.

Use this service to claim money if your employer owes you a redundancy payment or other money, such as wages, holiday and commission.

Your employer must be unable to pay you, for example because they’re insolvent. The Special Managers will give you details about how to apply and provide you a case reference number (for example CN12345678).

You’ll need this before you can start your claim. You can then make your claim online on the GOV.UK website

You can’t apply to the Insolvency Service if you live in Northern Ireland. Find out about your rights in Northern Ireland if your employer is insolvent on the nidirect website

Your employer isn’t paying up – what can you do?

If you think your employer’s paying the wrong amount of redundancy pay, or if you’re unhappy with the way you’re being treated – talk to them about it first.

You could also try your trade union rep, if you have one.

If this doesn’t work, you can make a complaint using your employer’s grievance procedure.

Otherwise, Acas (the Advisory, Conciliation and Arbitration Service) and the Labour Relations Agency offer free, confidential and impartial advice.

If matters still can’t be resolved, consider making a claim to an employment tribunal.

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Whatever your circumstances or plans, move forward with MoneyHelper.

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