Redundancy Pay UK: Statutory vs Enhanced

Redundancy pay splits into two tiers: the statutory minimum, worth up to £22,530 under the Employment Rights (Increase of Limits) Order 2026 (SI 2026/310), and any enhanced amount an employer chooses to pay on top. Here is how the two differ, and how the process and tax rules work.

What Is Statutory Redundancy Pay

Statutory redundancy pay is the legal minimum an employer must pay an employee with at least 2 years' continuous service who is dismissed for genuine redundancy. It is calculated using age-banded weeks for each full year of service: 0.5 week for each year worked under age 22, 1.0 week for each year aged 22 to 40, and 1.5 weeks for each year aged 41 or over. Length of service is capped at 20 years, and from 6 April 2026 a week's pay for this purpose is capped at £751 under SI 2026/310, giving a maximum possible payment of £22,530. For the full formula, age-band table and worked examples, see statutory redundancy pay.

What Is Enhanced (Contractual) Redundancy Pay

Enhanced, or contractual, redundancy pay is anything an employer pays above the statutory minimum. There is no fixed formula: an employer might offer more weeks per year of service, remove the 20-year service cap, drop the £751 weekly cap in favour of an employee's actual salary, or simply add a lump sum on top of the statutory figure. Enhanced terms come from an employment contract, a staff handbook, a collective agreement negotiated with a trade union, or an individual settlement agreement offered during the redundancy process. Unlike statutory redundancy pay, there is no automatic legal right to an enhanced payment unless it has been promised in writing or has become an established custom and practice at the organisation, so it is worth checking a contract and any staff handbook before assuming only the statutory minimum applies.

Statutory vs Enhanced Redundancy Pay

Is Redundancy Pay Taxed

Redundancy pay, statutory and enhanced amounts combined, is tax-free up to £30,000. Any amount above £30,000 is subject to income tax, and depending on how it is structured, National Insurance, in the normal way. This £30,000 threshold covers the redundancy payment itself; it does not extend to other sums often paid alongside it. Notice pay, including any payment in lieu of notice, and accrued but untaken holiday pay are earnings rather than redundancy pay, and are taxed and subject to National Insurance as normal through payroll. A payslip should show redundancy pay separately from notice pay and holiday pay, so it is clear which parts fall inside the £30,000 tax-free allowance and which are taxed as ordinary income.

The Redundancy Process

A fair redundancy process generally follows the same sequence whether the final payment is statutory or enhanced. An employer should explain why the role is at risk, apply fair and objective selection criteria where several employees could be affected, consult individually before confirming any dismissal, and give the correct notice period. The typical stages are:

• Warning staff that redundancies may be needed and explaining the business reason
• Applying fair, objective selection criteria when selecting from a pool of employees
• Holding individual consultation meetings, with a genuine chance to respond and suggest alternatives such as redeployment
• Confirming the decision in writing, with the redundancy payment calculation and notice period
• Giving notice, or pay in lieu of notice, under section 86 of the Employment Rights Act 1996 (see notice periods)
• Offering suitable alternative employment where it exists

Skipping these steps can turn what would otherwise be a genuine redundancy into an unfair dismissal.

Collective Consultation for Larger Redundancies

Where an employer proposes to make 20 or more employees redundant at one establishment within a 90-day period, additional collective consultation duties apply on top of individual consultation. The employer must consult with recognised trade union representatives or elected employee representatives, and consultation must begin before any dismissal notices are issued. The minimum consultation period is:

• 30 days before the first dismissal takes effect, where 20 to 99 redundancies are proposed
• 45 days before the first dismissal takes effect, where 100 or more redundancies are proposed

Consulting late, or not at all, can expose an employer to a claim at the employment tribunal, in addition to any redundancy pay owed to affected employees. Full guidance on running this process sits with ACAS.

Northern Ireland

Northern Ireland has its own redundancy legislation, separate from the Employment Rights Act 1996, with limits set by the Department for the Economy rather than Westminster. NI's figures are set independently and are currently higher than the Great Britain figures described here: a week's pay is capped at £783 and the maximum statutory redundancy payment is £23,490, against £751 and £22,530 in Great Britain. Always use the NI figures for an NI redundancy and check nidirect.gov.uk for the current limits. Redundancy disputes in Northern Ireland go to the Industrial Tribunal, not the Employment Tribunal used in Great Britain, and the enforcement and conciliation body is the Labour Relations Agency (LRA) rather than ACAS.

This article provides general information about redundancy pay in Great Britain and is not legal advice. Whether a redundancy is genuine, whether consultation was adequate, and what an individual contract or policy provides can all affect the outcome, so anyone facing redundancy should check their contract and consider independent advice from ACAS, Citizens Advice, or a solicitor. For the full picture of UK employment rights, see the UK Employment Law hub and the United Kingdom hub.