Statutory Redundancy Payment Calculation

Published / Last Updated on 14/09/2020

As the Furlough scheme comes to an end, many are predicting hundreds of thousands of redundancies in the UK.

It is perhaps timely to remind you about Statutory Redundancy Payment Calculations.

There are two types of redundancy payment:

  • Statutory redundancy (the government minimum payable by your employer and indeed the government if your employer is insolvent)
  • Contractual redundancy if your contract allows for payments greater than the statutory minimum

Calculation of Statutory Redundancy:

Work out how many complete years you have been employed by your company.

If less than two years, there is no entitlement to statutory redundancy pay, if you have worked for your employer for two years or more:

  • Aged 18-22 = ½ week’s pay for each year you have worked for your employer
  • Aged 22-40 = 1 week’s pay for each year you have worked for your employer
  • Aged 40+ = 1½ week’s pay for each year you have worked for your employer

Your weekly pay is capped at £538 per week.  If you earn more than this, your statutory redundancy pay will be capped.  If you earn below £538 per week, your full weekly pay will be taken into account.

Redundancy pay i.e. a payment in direct connection with the termination of your employment contract is tax free up to a value of £30,000.

If you receive ‘redundancy’ payments in excess of £30,000, these are subject to income taxes and national insurance contributions.

Other payments

If you receive other payments such as holiday pay, payments in lieu of notice (PILON) or you keep the company car, these are subject to income taxes and national insurance contributions.

If you receive a ‘restrictive covenant’ payment e.g. you cannot work for a competitor of your employer for a period e.g. 6 months, 1 year, 2 years, these are subject to income taxes and national insurance contributions.

Sometimes, your employer may not officially register your termination as a redundancy because they wish to keep the job position and title open for a few years for when things ‘pick up’, then this would not be a true redundancy and payments would also be subject to income taxes and national insurance contributions.


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