How Redundancy Pay Is Calculated: UK Statutory Rules Explained

If you're facing redundancy in the UK, understanding exactly how your statutory redundancy pay is calculated can help you plan your finances and assess whether any enhanced package your employer offers is fair. This guide walks through the official formula step by step, explains the key variables, and provides worked examples to make the process crystal clear.

The Statutory Redundancy Formula

UK statutory redundancy pay is calculated using three factors: your age during each year of service, the number of complete years you've worked for your employer, and your weekly gross pay (subject to a cap). The formula works backwards from your redundancy date, looking at each complete year of employment and applying a multiplier based on your age during that year.

For the 2025/26 tax year, the weekly pay cap is £643. If your actual weekly pay is higher than this, the calculation uses the capped amount instead. The maximum number of years that count is 20, even if you've worked for your employer longer.

Age-Based Multipliers

Your age during each year of service determines the multiplier applied to your capped weekly pay for that year. The multipliers recognise that older workers may find it harder to secure new employment and have typically built up greater financial commitments. The three bands are:

• Under 22: Half a week's pay (0.5×) for each complete year of service
• Age 22 to 40: One week's pay (1.0×) for each complete year of service
• Age 41 and over: One and a half week's pay (1.5×) for each complete year of service

Because the calculation works year by year, someone who turns 41 partway through their employment will have some years calculated at 1.0× and later years at 1.5×. This is exactly what our redundancy calculator does automatically — it works through each year individually so you get an accurate figure.

The Weekly Pay Cap

The government sets a maximum weekly pay figure each tax year. For 2025/26, this is £643. If you earn more than this per week, the statutory calculation treats your pay as £643. This cap is reviewed annually and typically increases slightly each year in line with inflation.

Your "week's pay" means your gross pay before tax and National Insurance. If your pay varies (for example, because of overtime or commission), it's calculated as the average over the 12 weeks before your redundancy notice was given. If you're unsure about your exact figure, check with your employer's HR department or look at your recent payslips.

Eligibility Requirements

To qualify for statutory redundancy pay, you must have been continuously employed by the same employer for at least 2 years. This applies to employees only — not self-employed contractors or agency workers (unless they meet specific criteria). You must also have been dismissed by reason of redundancy, not for other reasons such as misconduct. Redundancy means your employer needs fewer workers to do a particular kind of work, is closing the business, or is closing the location where you work.

Worked Example

Consider Sarah, aged 45, who has worked for her employer for 12 years and earns £550 per week. Her pay is below the cap, so the full £550 is used. Working backwards from her redundancy date: the most recent 4 years (ages 42–45) are at the 41+ rate of 1.5× per year, giving 6 weeks' worth. The preceding 8 years (ages 34–41) fall in the 22–40 band at 1.0× per year, giving 8 weeks' worth. Her total is (6 + 8) × £550 = 14 × £550 = £7,700.

Now consider James, aged 28, with 6 years of service earning £700 per week. His pay exceeds the £643 cap, so the calculation uses £643. All 6 years fall in the 22–40 band (1.0×), giving 6 weeks. His statutory pay is 6 × £643 = £3858. The £57 per week above the cap is not included — though his employer could offer an enhanced package using his full salary.

Common Mistakes to Avoid

The most common error is using a single multiplier for all years of service instead of calculating year by year. If your age has crossed a boundary (particularly 22 or 41) during your employment, the multiplier changes. Another mistake is forgetting the weekly pay cap — if you earn well above average, your statutory entitlement may be lower than you expect. Finally, some people forget that only complete years count. If you've worked for 4 years and 11 months, the calculation uses 4 years.

Using Our Calculator

Our free redundancy calculator handles all of this automatically. Enter your date of birth, employment start date, expected redundancy date, and weekly pay, and it will calculate your statutory entitlement with a full year-by-year breakdown. You can also switch to Enhanced mode to compare an employer's offer against the statutory minimum, or check your notice period entitlement.

Frequently Asked Questions