- Employees qualify after two continuous years of service.
- The official formula applies age multipliers capped at twenty years.
- Weekly pay is capped at £751 with a £22,530 total payout limit.
- HMRC exempts redundancy payments from tax up to £30,000.
To run a statutory redundancy pay calculation in the UK, multiply an employee's service years by their age multiplier and gross weekly pay. Staff need two years of continuous service. Service years are capped at twenty. Gross weekly pay is capped at £751. This cap sets the highest legal redundancy payout at £22,530. This guide helps small business bosses, HR teams, and payroll leads calculate payments correctly under UK rules.
Redundancy is tough for every team. Getting payroll math wrong creates legal risks. A payroll mistake can trigger tribunal claims. Pay claims cause big fines. Following the legal formula guarantees compliance with the Employment Rights Act 1996 and HMRC guidelines.
Statutory redundancy pay formula and age brackets
The statutory redundancy pay formula uses three core facts. You need age, service years, and weekly pay. Count service backward from the dismissal date. The law sets clear weekly multipliers for each age group:
- Age 41 and older: 1.5 weeks of pay for each full year.
- Ages 22 to 40: 1.0 week of pay for each full year.
- Under age 22: 0.5 weeks of pay for each full year.
Count full years only. Do not round up part years. If someone worked four years and eight months, you count four years. The law caps service at twenty years. If a staff member worked twenty-four years, you drop the first four years. When planning team costs in your four-week cash-flow forecast, knowing these fixed legal caps protects liquidity.
Gross weekly pay limits and the 12-week reference period
Gross pay in this formula has strict caps. The law sets a firm ceiling on weekly wages. For redundancies on or after 6 April 2026, weekly pay is capped at £751. If a manager earns £1,100 a week, you must calculate their mandatory redundancy payment using £751.
Staff earning below £751 use their true gross pay. For fixed-hours staff, gross pay means standard contracted wages before tax and National Insurance deductions. Overtime pay does not count unless the job contract guarantees it.
Variable hours need a twelve-week check. You add up gross pay across the twelve weeks before notice, then divide by twelve. Just as when tracking days for statutory sick pay qualifying days, keeping clean timesheets stops pay disputes before they start.
Worked example: calculating statutory redundancy pay UK
A practical case shows how the rules work together. Take a worker aged 48 at dismissal. They hold 14 years of service. Their weekly wage is £850, which sits above the £751 cap.
The legal £751 cap applies here. You count their fourteen years backward from age 48:
Labelled example: Breakdown of statutory redundancy pay calculation for 14 years of service.
| Age Band Category | Years Counted | Legal Multiplier | Effective Weeks of Pay | Capped Weekly Rate | Total Payout |
|---|---|---|---|---|---|
| Ages 41 to 48 (Age 41+) | 8 years | 1.5 weeks per year | 12 weeks | £751 | £9,012 |
| Ages 34 to 40 (Ages 22 to 40) | 6 years | 1.0 week per year | 6 weeks | £751 | £4,506 |
| Under age 22 | 0 years | 0.5 weeks per year | 0 weeks | £751 | £0 |
| Total Legal Settlement | 14 years | Combined | 18 weeks | £751 | £13,518 |
The total legal minimum comes to £13,518. Contractual terms might offer higher sums. If a contract offers enhanced pay, the payout must not drop below this legal floor. Check all dates carefully. Pay on time.
HMRC statutory redundancy pay tax and National Insurance rules
Under Section 403 of ITEPA 2003, genuine redundancy pay is tax-free up to £30,000. Redundancy payouts also skip employee and employer National Insurance deductions.
The £30,000 tax relief covers loss of employment only. Regular earnings do not qualify. You must deduct tax and National Insurance from notice pay, unused holiday pay, and contractual bonuses. Mixing termination pay with standard wage lines can invite swift scrutiny from HMRC.
Redundancy payouts normally count as allowable business costs for Corporation Tax. Just as timely tax filings help you avoid corporation tax late filing penalties uk, logging termination costs correctly ensures your business claims full tax deductions.
Employer compliance and written statement checklist
Under Section 165 of the Employment Rights Act 1996, bosses must provide a written calculation sheet. Give this statement before or when paying. Missing this written statement is an offence that risks a fine.
| Compliance Step | Legal Obligation | Operational Risk | Recommended Action |
|---|---|---|---|
| Service Verification | Confirm 2+ continuous years | Paying ineligible staff or missing service | Audit start date and continuous employment continuity. |
| Age Bracket Breakdown | Apply 0.5, 1.0, or 1.5 multipliers | Incorrect age tier multiplication | Map each service year to the employee's exact age. |
| Weekly Pay Capping | Apply £751 weekly limit | Overpaying or underpaying legal base | Cap gross weekly rate at £751 for post-April 2026 dismissals. |
| Written Statement | Provide clear calculation sheet | Regulatory non-compliance fine | Issue signed calculation breakdown with final payslip. |
| Payroll Tax Separation | Apply £30,000 tax threshold | Incorrect PAYE deductions on notice or holiday | Process termination settlement through distinct payroll codes. |
Clear payroll audits help your company claim other business reliefs. For instance, tidy records support claims under employment allowance eligibility rules uk across each tax quarter. Store signed settlement forms, meeting notes, and pay statements for six years following our guide on how long to keep business records.
Sources and scope
GOV.UK: Redundancy Rights and Pay · Employment Rights Act 1996 Section 162 · Acas: Work Out Redundancy Pay · GOV.UK: Making Staff Redundant. This guide provides operational compliance analysis for UK employers and small businesses. Employment laws and wage caps are updated annually. Always seek advice from a qualified employment lawyer or chartered accountant for specific workforce decisions.