Redundancy Pay UK 2026 — Statutory Entitlement, Tax and Your Rights

Redundancy is a stressful process, and understanding your entitlements clearly can make a significant practical difference — both financially and in terms of your negotiating position. This guide covers everything you need to know about Statutory Redundancy Pay in 2026, the tax treatment of different payment types, your procedural rights, and what happens if your employer becomes insolvent.

What Is Statutory Redundancy Pay?

Statutory Redundancy Pay (SRP) is the minimum payment your employer must make when they make you redundant. It is a legal entitlement, not a discretionary payment — your employer cannot pay less than the statutory amount.

Qualifying Conditions

To qualify for SRP you must:

• Have been continuously employed for at least two years
• Have been genuinely made redundant (not dismissed for misconduct, capability, or another reason)
• Have not unreasonably refused an offer of suitable alternative employment

Employees on fixed-term contracts qualify if the contract has run for two or more years. Zero-hours workers can qualify if they can demonstrate continuous employment — the key is whether there is a mutuality of obligation (an expectation of work being offered and accepted).

Apprentices, self-employed contractors, and genuinely casual workers do not qualify, nor do business owners.

The Statutory Redundancy Pay Formula

SRP is calculated based on three factors: age at the time of redundancy, complete years of service (up to a maximum of 20), and weekly pay (capped at £751 from April 2026).

Maximum parameters for 2026:

• Weekly pay cap: £751 (increased from £719 in April 2025 to £751 in April 2026)
• Maximum years counted: 20 years
• Maximum SRP payable: 20 × 1.5 × £751 = £22,530

How to Calculate Your SRP

Work through your service history from most recent to oldest, applying the age-band rate that applied to you in each year:

Step-by-step example:

Employee aged 45 with 12 years' service, earning £35,000/year (£673 per week — under the £751 cap):

(Note: The age at the START of each year of service is used, counting backwards from the redundancy date)

Compare with maximum earner:

Employee aged 61, 20+ years' service, earning £50,000/year (capped at £751/week):

• All 20 years at age 41+ (1.5 weeks each): 20 × 1.5 × £751 = £22,530

Tax Treatment: What's Tax-Free and What Isn't

The £30,000 Tax-Free Threshold

Genuine statutory and enhanced redundancy payments are tax-free up to £30,000. This includes:

• Statutory Redundancy Pay
• Any contractual or enhanced redundancy payment above SRP
• Other non-contractual compensation payments (e.g., ex-gratia sums)

Payments above £30,000 are subject to Income Tax (but not National Insurance).

Important: All termination payments from the same employment are added together when applying the £30,000 threshold. You cannot receive multiple smaller payments to stay under the limit.

Pay in Lieu of Notice (PILON) — Always Taxable Since April 2018

A critical change from April 2018: all PILON is now taxable as employment income, regardless of whether it is provided for in the contract.

Before 2018, employers could pay PILON as a non-contractual payment and shelter it within the £30,000 exemption if the employment contract did not include a PILON clause. This loophole was closed.

The PENP Formula

HMRC uses the "Post-Employment Notice Pay" (PENP) formula to calculate how much of any termination package is treated as PILON (and therefore taxable):

PENP = (BP × D) ÷ P

Where:

• BP = Basic Pay in the last pay period before the termination date
• D = Number of days of unserved notice
• P = Number of days in the last pay period

National Insurance on PILON: Unlike other termination payments above £30,000 (which attract Income Tax only), PILON also attracts National Insurance contributions — both employee (8% on earnings between the NI thresholds) and employer.

Summary: Tax Treatment by Payment Type

Accelerated Taxation

When you receive a large taxable redundancy payment, your total income for the tax year will spike. This can push you into a higher tax band.

Example: Employee earns £35,000/year and receives a termination package of £20,000 PILON + £15,000 enhanced redundancy.

• PILON is taxable: £20,000 added to employment income → total taxable income = £55,000 (into higher rate band above £50,270)
• Enhanced redundancy payment falls within the £30,000 threshold, so £0 tax on it

In practice, PILON is often deducted from the total termination payment at source — your employer should apply PAYE correctly. If you receive the payment in a lower-income tax year (e.g., you leave partway through the year), your total income may be lower and the effective rate better.

Enhanced Redundancy: Employer's Choice

Employers are free to offer enhanced redundancy payments above the statutory minimum. Common approaches:

• Multiple of statutory: E.g., 2× SRP (doubled for each applicable payment)
• Uncapped weekly pay: SRP using actual weekly pay rather than the £751 statutory cap
• Additional service: Counting years beyond 20, or counting part-years as full years
• Ex-gratia payments: Discretionary payments not linked to the SRP formula

Enhanced payments are generally contractual (in your contract or company policy) or negotiated as part of a settlement agreement. If enhanced redundancy is established custom and practice (offered consistently over many years), it may be contractually binding even if not written down.

Consultation Rights

Redundancy is a statutory process, not a commercial transaction. Your employer must follow proper procedure or risk claims for unfair dismissal.

Individual Consultation

Regardless of the number of redundancies, your employer must:

• Give advance warning that redundancy is being considered
• Explain the reason for the redundancy
• Consult with you about alternatives (redeployment, part-time working, etc.)
• Consider any representations you make before the final decision

Collective Consultation

Where an employer proposes to make 20 or more employees redundant at one establishment within a 90-day period, additional collective consultation obligations apply:

Failure to comply with collective consultation obligations can result in a Protective Award of up to 90 days' gross pay per affected employee — awarded by an Employment Tribunal.

The employer must also notify the Insolvency Service via the HR1 form at the start of the collective consultation period. Failure to notify is a criminal offence.

Selection Criteria and Unfair Dismissal

If your redundancy selection process is unfair or discriminatory, you may have a claim for Unfair Dismissal (if you have two years' qualifying service) or Discrimination (protected characteristic involved — no qualifying service needed).

Automatically unfair reasons for selection include:

• Pregnancy or maternity leave
• Trade union membership or activity
• Making a protected disclosure (whistleblowing)
• Exercising a statutory right (e.g., requesting flexible working)

Employers commonly use a scoring matrix for selection — typically covering skills, performance, disciplinary record, and attendance. The matrix must not directly or indirectly discriminate.

Settlement Agreements

A settlement agreement (formerly a compromise agreement) is a legally binding contract between employer and employee, usually signed at the end of employment. Key points:

• You must take independent legal advice from a solicitor for a settlement agreement to be binding — the employer usually pays a contribution to this (typically £250–£500 + VAT)
• A settlement agreement can include payments beyond SRP, including sums for loss of office, compensation for alleged unfair dismissal claims, notice pay, and contractual entitlements
• Tax treatment depends on the nature of each element — a solicitor or tax adviser should review the breakdown
• Signing a settlement agreement typically involves waiving your right to bring Employment Tribunal claims related to the employment

For larger packages (particularly senior employees): It is worth negotiating the breakdown of the payment specifically to maximise the portion within the £30,000 tax-free threshold and minimise the taxable elements.

Employer Insolvency: Claiming From the National Insurance Fund

If your employer becomes insolvent before paying your redundancy entitlement, you can claim from the National Insurance Fund (NIF), administered by the Insolvency Service.

What you can claim:

• Statutory Redundancy Pay
• Arrears of pay (up to 8 weeks, capped at the weekly pay limit)
• Notice pay (PILON equivalent)
• Outstanding holiday pay
• Certain pension contributions

How to claim:

1. The insolvency practitioner (administrator, liquidator) will notify you and provide form RP1 (Redundancy Payment claim) or direct you to the online system at GOV.UK/claim-redundancy
2. Claims must be submitted within six months of the insolvency or redundancy date
3. The NIF pays within 6 weeks typically, though complex cases can take longer

Limits: The NIF pays out based on the same weekly pay cap (£751) and 20-year service limit as SRP. If your employer owed you enhanced redundancy above the statutory minimum, you become an unsecured creditor for the difference — you will be paid from any remaining assets, but this may be nil or pennies in the pound.

Worked Example: 45-Year-Old, 12 Years' Service, £35,000/Year

Scenario: Juliet, age 45, is made redundant after 12 years' service. Salary: £35,000/year (£673/week — under the £751 cap). Contract has a three-month notice clause. Employer offers: SRP + three months' PILON + £5,000 ex-gratia payment.

Step 1: Calculate SRP

• 4 years at age 41–44: 4 × 1.5 × £673 = £4,038
• 8 years at age 33–40: 8 × 1 × £673 = £5,384
• SRP total: £9,422

Step 2: Calculate Notice Pay (PILON)

• Three months at £35,000/12 = £8,750 — fully taxable as earnings
• Employer NI also due on this amount

Step 3: Ex-Gratia Payment

• £5,000 ex-gratia — combines with SRP against the £30,000 threshold
• SRP (£9,422) + ex-gratia (£5,000) = £14,422 — well within £30,000 threshold, so tax-free

Step 4: Total Package

Juliet also retains the right to claim Jobseeker's Allowance / Universal Credit during the job search period. The redundancy payment is treated as capital for UC purposes and may affect entitlement if total capital exceeds £6,000 (reduced UC) or £16,000 (UC stops).

Key Takeaways

• SRP is capped at £751/week and a maximum of 20 years' service — maximum payout is £22,530
• The age-band multiplier rewards long service: 0.5× under 22, 1× at 22–40, 1.5× at 41+
• Redundancy payments are tax-free up to £30,000; PILON is always fully taxable (Income Tax and NI)
• Collective consultation obligations require 30 days (20–99 redundancies) or 45 days (100+); breach can generate Protective Awards
• If your employer is insolvent, claim from the National Insurance Fund via the Insolvency Service — you will receive your statutory entitlements even if the employer cannot pay
• Settlement agreements require independent legal advice and can structure payments for maximum tax efficiency

Calculate your exact Statutory Redundancy Pay using our redundancy pay calculator, and model how the taxable elements affect your annual take-home with the income tax calculator.