Why is my statutory redundancy pay lower than my actual weekly wage?

Full answer

Many employees are surprised that their statutory redundancy pay calculation does not simply use their real weekly wage, and understanding the capped "week's pay" figure explains why higher earners in particular often receive less statutory redundancy pay than they might expect. **How statutory redundancy pay is calculated** Statutory redundancy pay is based on three factors: a capped "week's pay" figure (reviewed and set each April), the employee's age in each year of service, and the number of complete years of continuous service (up to a maximum of 20 years) -- employees get half a week's pay per year of service for years worked under age 22, one week's pay per year for years worked aged 22 to 40, and one and a half weeks' pay per year for years worked aged 41 and over. **Why the cap matters for higher earners** The "week's pay" figure used in the calculation is capped at a statutory maximum, reviewed annually -- if your actual gross weekly pay is HIGHER than this cap, the calculation still only uses the capped figure, not your real, higher wage. This means higher earners effectively get proportionally less statutory redundancy pay relative to their real salary than lower earners do, since the formula treats everyone above the cap identically regardless of how much more they actually earn. **Worked example** An employee aged 45 with 10 complete years of service earns £1,200 a week gross, but the statutory weekly pay cap for redundancy purposes that year is set at a lower figure, say £700 (illustrative). Statutory redundancy pay uses the capped £700 figure, not the real £1,200 wage. At one and a half weeks' pay per year for all 10 years (since they were over 41 throughout), the statutory redundancy pay would be 10 x 1.5 x £700 = £10,500 -- considerably less than the roughly £18,000 the same calculation would produce using their real £1,200 weekly wage instead. **Maximum statutory redundancy pay overall** Because both the weekly pay figure and the number of qualifying years (maximum 20) are capped, there is an overall statutory maximum redundancy payment achievable, reached by someone with the maximum 20 years' service, all worked at age 41 or over, using the capped weekly pay figure -- anyone in a genuinely long-service, older-age scenario at the current cap effectively cannot receive more than this maximum from the statutory formula alone. **Enhanced or contractual redundancy schemes** Many employers, particularly larger organisations, offer enhanced redundancy schemes that are more generous than the bare statutory minimum, sometimes using an uncapped or higher weekly pay figure, offering more weeks' pay per year of service, or removing the 20-year service cap -- always check your contract, staff handbook, or any collective agreement for enhanced terms before assuming only the statutory minimum applies. **Tax treatment stays the same regardless of the cap** Whether redundancy pay is calculated using the capped statutory formula or a more generous enhanced scheme, the same broad tax treatment generally applies: genuine redundancy payments can benefit from the £30,000 tax-free termination payment exemption, with amounts above that threshold subject to Income Tax (though not employee National Insurance) on the excess. **Practical tip** If your redundancy pay seems lower than expected given your actual salary, check the current statutory weekly pay cap and confirm the calculation has correctly applied it (rather than, incorrectly, your real higher wage) -- and separately check whether your employer's contract or policy offers an enhanced scheme on top of the bare statutory minimum, since many employers do.

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