Updated: Nov 17
Redundancy pay is yet another statutory calculation which as an employer you have to get right. Use our redundancy pay calculator to make life easier and calculate statutory redundancy pay mistake-free. This statutory redundancy pay calculator is valid from 6th April 2021-5th April 2023
Download a free excel version of this redundancy pay calculator
What is redundancy pay?
Redundancy is a form of dismissal where the employer needs to reduce the workforce. Employees have a series of rights when made redundant such as:
a consultation (individual or collective) with the employer
the possibility to find a new job
take time off to look for other jobs
Who is entitled to redundancy pay
For employees to have a right to statutory redundancy pay, they will have to have been employed for at least two years by the employer. This also applies to fixed term contracts and shorter contracts as long as the employment time adds up to two years or more
Who is not entitled to redundancy pay
Not everyone has a right to redundancy pay. This happens when the employee falls into at least one of these categories
Police officer, member of the armed forces
Crown servants or people that hold public office
Domestic personnel for an immediate family member
Apprentices at the end of their training who have yet to become employees
When employees lose the right to redundancy pay
Employees lose redundancy rights when
They are laid off because of misconduct
They leave because they found another job
They turn down an appropriate alternative job proposed by their current employer without a good reason
Employee must be notified before being made redundant (statutory notice)
at least 1 week before for employees that have worked between 1 month and 2 years
1 additional week for each year worked after 2 years of employment up to a maximum of 12 weeks
Calculate redundancy pay
Step 1) The employment start date
This is to calculate the number of full years an employee worked for an employer up until the start of the redundancy period. If she worked for 3 years and 9 months, the number of full years is 3. When calculating redundancy pay, at most the last 20 years can be taken into consideration. It is very important to note that if an employee has worked for less than 2 years (e.g. 1 year and 11 months) then she is not entitled to redundancy pay
Step 2) The date an employee was made redundant
This is the relevant date which you will need to use to count the number of full years an employee worked. This is normally the date when the employee's notice period ends. For example, if you give the redundancy notice to an employee on the 12th of September 2022, and the employee worked 2 years, the redundancy begins at least the 19th of September. If someone has a contractual notice and they are being paid in lieu of notice, you will need to work out their statutory notice period to get the relevant date.
Step 3) Jurisdiction
The maximum weekly rates differ between jurisdictions. In Northern Ireland, the maximum weekly pay is capped at £566 while in the rest of the UK, weekly pay is capped at 571£. These pay caps are valid from the 6th of April 2022 till the 5th of April 2022
Step 4) The age of the employee when she was made redundant
You will need to calculate the weeks accrued for each full year the employee has worked. Employees accrue weeks as follow:
0.5 weeks pay for each full year employees worked up to 22 years old
1 weeks pay for each full year between 22 years old or older and 41 years old
1.5 weeks pay for each full year they were 41 years old or older
Step 5) Average weekly earnings
From the end of the notice period, you need to work out the average weekly pay over the previous 12 weeks before tax and any deductions
John started working for ABC on the 19th of July 2018 and was given his redundancy notice on the 15th of July 2021. John has no contractual notice and we then apply his minimum notice period of one week. Thus, the number of full years in this case are 3 as the relevant date is the 22nd of July. Had John received his redundancy notice on the 10th of July the number of full years would have been two. He is 42 years old. Therefore, he worked three full years at 41, 40 and at 39 years old. His average weekly pay over the 12 weeks before being made redundant is £456.
He has accrued 3.5 weeks:
1.5 weeks as he worked for a full year when he was 41 years old
1 week for each of the other two years
Then the statutory redundancy pay in John's case is £456 X 3.5 = £1,596
If an employee has an irregular working schedule, you will need to work out the average weekly earnings and disclose how you reached the final figure to the employee
Maximum redundancy pay
Given the weekly earnings cap and the maximum number of years taken into consideration (20 which may contribute to a maximum of 30 weeks), redundancy pay is capped at £17,130 (£571 weekly) for England & Wales and Scotland while it is capped at £16,980 (£566 weekly) for Northern Ireland. These rates are valid for the period starting on the 6th of April 2022.
Is redundancy pay taxable?
Up to £30,000 redundancy pay is not taxable. Thus, statutory redundancy pay is not taxable given that it is capped at £16,980 in Northern Ireland while it is capped at £17,130 in the rest of the UK
An employee is entitled to a consultation with the employer about why she is being made redundant and whether there are any alternatives. If 19 or less employees are being made redundant at the same time, there are no rules as how consultation should be carried out. However, if more than 20 employees are being made redundant, the collective rule applies and a representative will carry out the consultation. This can be:
A trade union representative
An elected employee
If the number of redundancies is between 20 and 99, consultations must start at least 30 days before any dismissal takes place while above 100 redundancies this period is at least 45 days.
Employees that are on fixed-term contract do not need to be included in collective consultations unless their contract is being ended early because of redundancy
What is enhanced redundancy pay?
Enhanced redundancy is when an employer gives a higher rate on top of the statutory or contractual pay. This may be to help the employee transition, reward staff loyalty as well as to incentivise voluntary redundancy (i.e. agreement to terminate the contract early)
When should redundancy pay be paid?
Redundancy should be paid no later than the employee's final pay day. However, you can both agree to a later date in writing.