Glossary · UK
What is Enhanced Redundancy Pay?
A voluntary, contractual redundancy payment an employer chooses to offer above the statutory minimum, typically calculated using a more generous formula and often taxed the same way as statutory redundancy pay up to the £30,000 exemption.
Full Definition
Enhanced redundancy pay is any redundancy payment an employer provides above the legal minimum set by statutory redundancy pay, offered either because it is written into the employment contract or a collective agreement, or as a discretionary gesture of goodwill, often used to encourage take-up of voluntary redundancy or to soften the impact of a larger restructuring. Unlike statutory redundancy pay -- which is calculated using a fixed formula based on age, length of service (capped at 20 years), and a capped weekly pay figure set each April -- enhanced schemes are entirely at the employer's discretion and commonly use a more generous formula, such as a fixed number of weeks' actual (uncapped) pay per year of service, sometimes with no cap on qualifying service length or weekly pay. For tax purposes, enhanced redundancy pay is generally treated the same way as statutory redundancy pay: the first £30,000 of a genuine redundancy payment (statutory and enhanced elements combined) is free of Income Tax and National Insurance, with any amount above £30,000 subject to Income Tax at the employee's marginal rate, though from April 2025 employer Class 1A National Insurance also applies to the excess above £30,000, a change that increased the cost to employers of large enhanced redundancy packages. Payments in lieu of notice, holiday pay, and any bonus or commission included in a termination settlement do not benefit from the £30,000 exemption and are taxed as normal earnings regardless of how the overall package is labelled. Because enhanced redundancy terms are contractual once an employer has established a clear, consistent practice or written policy, employers cannot simply withdraw an established enhanced scheme without proper contractual variation or consultation, and inconsistent application of an enhanced scheme (for example, applying it to some employees but not others in comparable circumstances) can expose an employer to discrimination claims. Employees should always check their contract, staff handbook, or any collective agreement for an enhanced redundancy formula before assuming only the statutory minimum applies, since enhanced terms can be worth several times the statutory calculation, particularly for long-serving, older employees whose statutory entitlement is capped.