Redundancy pay: everything you need to know

What is redundancy pay?

There are two different types of redundancy pay:

Statutory redundancy

Pay follows mandatory UK government policy regarding how much you’re entitled to.

Contractual redundancy

Pay is any extra money on top of the statutory amount laid out in your contract.

Are you entitled to redundancy pay? Who gets what?

Statutory pay is the absolute legal minimum when being made redundant. There are certain requirements in order for you to receive statutory pay:

- You must be working under a contract of employment

- You have served the company continuously for at least 2 years

- You are a certain type of employee. This includes part-time workers

- You have lost your job because of redundancies and not any other reason

Contractual pay is anything extra and doesn’t apply to everybody. Your contract might state that you’re to get more than the legal requirement, or that you’re entitled to some extra pay, even if you’ve been there less than 2 years. This will vary from business to business, as each will have a unique policy, and also from contract to contract.

Contractual redundancy also applies to contract workers. For example, if your employer doesn’t renew your contract because the job is no longer needed and you have:

- Worked continuously for the company over a 2-year fixed-term contract

- Worked several, shorter contracts that add up to 2 years or more

It should also be noted that contractual redundancy pay, legally, cannot be less than the statutory pay.

You do not qualify for redundancy pay if:

- You requested early retirement

- You have worked at the company for less than 2 years

- You turn down the offer of alternative employment without a good enough reason

- If you find another job during your notice period and want to leave before your current role is due to end

- If you’re fired before the job is supposed to end

As a rule of thumb, your redundancy pay will be worked out based on what your contract states. So, for instance, if you are on maternity leave, are taking sick leave or have agreed to a temporary drop in wages, the amount you're currently getting paid doesn’t really matter, it’s the amount stated on your contract that the redundancy pay will be based on.

Likewise, if you go against anything your contract states (e.g. wishing to leave before the contract ends) this could affect your redundancy pay. It’s always worth getting your contract out and going through it to see what applies to you.

How much redundancy pay are you entitled to?

The amount is based on your age, how long you’ve served in the company and your salary.

Only complete years of service counts in this equation. 4 years and 11 months would still be classed as 4 years, unfortunately.

• If you are 18-22, you will receive half a week’s pay for every year of service.
• If you are 22-40, you will receive a week’s pay for every year served.
• If you are over 41, you will receive a week and a half week’s pay for each year served.

You can use an online redundancy pay calculator to work out how much you’re specifically owed.

There are some caps on how much redundancy pay you can receive:

- £508 is the maximum weekly amount you can be paid, even if you earn more than that in a week.

- 20 years is the maximum number of years you can receive redundancy pay for. Anything over 20 years is...redundant.

Do you have to pay tax on redundancy pay?

You don’t pay any tax on statutory redundancy pay, but you will have to pay tax on contractual redundancy pay if it’s over £30,000. The tax deduction should be handled by your employer before the payment is given to you.

You will, however, have to pay tax and National Insurance on other termination payments. These include pay in lieu, holiday pay and any other payments that relate to the job role itself rather than the redundancy.

Why would you receive redundancy pay?

There are many reasons why you’d be made redundant and then receive the proper pay for this. Each reason usually falls under one of three things:

- Your specific job is no longer needed in the business and therefore you are no longer needed

- The business is closing voluntarily

- The company is going out of business

Read next: The ultimate guide to voluntary redundancy

What are my rights to redundancy pay as an employee? 

When made redundant in the UK, certain rights are unconditional.

You have the right to receive written confirmation stating the amount of redundancy pay you’ll get. This could also state the reason for the redundancy and the final date of your work within the company.

You are entitled to an individual meeting to discuss the redundancy.

If you’ve worked for your employer for at least 2 years, you’re entitled to receive some time off to look for other work. If an interview falls within your working hours, for instance, your employer must accept that you will attend the interview and not be asked to make up the time afterwards. This doesn’t apply if you’re in the armed forces.

This time off, although a legal right, is obviously within reason. It depends on how long your notice period is, what your contract states, whether the business is reliant on your presence and how far you’d have to travel to find new work.

If your employer doesn’t agree to it, explain that you're legally entitled to it and they might change their minds.

Should my employer try to find suitable alternative employment?

If you’ve been working at the company for 2 years or more, your employer should try and find you another job within the company. This is called suitable alternative employment.

Your employer should discuss alternative roles with you when they break the redundancy news to you individually.

When should I receive my redundancy pay?

The payment should be in your account (or however you receive your wages) from your employee on the day you are supposed to leave work, or on an agreed date soon after this, which has been OK’d by you.

If your employer isn’t coughing up...

A step-by-step guide of what to do when you haven’t received your redundancy pay

On some occasions, employers don’t pay out. It’s frustrating, but it happens, and there are some things you can do to ensure that you are paid the money you are entitled to.

1. Speak to your employer

If you’re comfortable with this, you should start by contacting your employer before having a chat vis-à-vis. This could be via email or a letter. Try and make sure it’s written, rather than spoken, so you have evidence of the conversation.

The letter should be formal and addressed to the business you have just left. It should explain that you haven’t received your redundancy pay yet and should outline what you are entitled to with any evidence to back it up.

Tip: don’t send original evidence. Send copies and keep the originals for when you might need them later.

2. Contact ACAS

If the letter didn’t work, then this independent board should be able to help you out. They’ll ask your employer if they’d be willing to begin early conciliation.

Early conciliation consists of two parties trying to resolve a dispute before it’s taken to a tribunal. ACAS acts as an impartial third party, a sort of middleman between two quarrellers who don’t fancy talking to each other, but need something sorting out.

ACAS will ask you to fill out an early conciliation and then they’ll be on the phone to discuss the situation with you. You don’t even need to fully explain the source of the dispute - all ACAS initially need is your name and address, along with your employer’s.

3. Take your employer to a tribunal

This is the last and final resort if the first two steps haven’t worked. Before you go up to the tribunal all guns blazing, it’s a good idea to get your head around their procedures. For instance, how much it could cost you and other factors. We suggest using Citizens Advice support as a springboard, before taking any big steps alone.

Who pays the redundancy money when your employer can’t?

There could be a good reason for your employee not paying you. If the business has gone bust, don’t despair. You’ll still get the statutory pay as it’s a legal right and is owed to you, however, you’ll need to claim this from the State. You’ll need to visit the website for the Redundancy Payments Service and fill out an RP1 form. Any wages and holiday that you’re owed will also have to be claimed.

Signing off

Now you should have a base level understanding of how redundancy pay works and how it affects everyone involved. While the loss of jobs or the fall of a business is never easy, knowing you'll receive a small parting salary, or even another role, can slightly soften the blow.