How Redundancy Pay Works in the UK
Employees with at least 2 years' continuous service who are made redundant are entitled to statutory redundancy pay under the Employment Rights Act 1996. The amount depends on age and length of service — half a week, one week or one and a half weeks' pay per full year — with service capped at 20 years and a week's pay capped at £751. Many employers pay more under an enhanced scheme.
The first £30,000 of a genuine redundancy payment — statutory and enhanced combined — is free of income tax and employee National Insurance. Anything above it is taxed as income, and the employer pays Class 1A National Insurance on the excess.
However, notice period pay (payment in lieu of notice) is treated as normal employment income and taxed at your regular PAYE rate. Understanding this distinction is important for estimating your actual take-home amount from a redundancy package.
Frequently Asked Questions
How is statutory redundancy pay calculated in the United Kingdom?
It depends on age and service: half a week's pay per full year under 22, one week per year aged 22–40, and one and a half weeks per year aged 41+. A 45-year-old with 5 full years' service earning £3,000 a month (£692/week) gets 7 weeks' pay — one week for the year they were 40, then one and a half weeks for each year from 41 — about £4,846. Weekly pay is capped at £751.
How is statutory redundancy pay taxed in the United Kingdom?
The first £30,000 is tax-free. Anything above it is taxed through PAYE at your marginal rate.
What is included in a redundancy package?
Statutory redundancy pay, notice pay (worked or paid in lieu), untaken holiday, and sometimes an enhanced redundancy payment.
Is notice period pay taxed differently from statutory redundancy pay?
Yes. Notice pay is taxed as normal earnings with National Insurance. Only the redundancy payment itself benefits from the £30,000 tax-free threshold.
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