How to calculate statutory redundancy pay (2026/27)

Before you start

Legal basis. Employment Rights Act 1996, Part XI [5]; the Employment Rights (Increase of Limits) Order 2026, which covers Great Britain, not Northern Ireland [4]; Trade Union and Labour Relations (Consolidation) Act 1992, s.189 [11]; Income Tax (Earnings and Pensions) Act 2003, ss.402D and 403 [8].

Who is involved. HR, payroll, finance and employee representatives.

What you need: each employee's date of birth, start date, notice terms and weekly pay (12 weeks' records if pay varies); any enhanced policy; and proposed redundancies per establishment. If 20 or more, read Step 9 first.

Step 1: Check eligibility

An employee qualifies with at least 2 years' continuous service if dismissed for redundancy, laid off or put on short-time working [2][3]. They lose it by refusing suitable alternative work without good reason. Some groups, such as Crown servants and the armed forces, are excluded [2].

Step 2: Fix the relevant date and count full years

The relevant date is the day notice expires or, with no notice, the day dismissal takes effect. If you give less than statutory minimum notice, including by paying in lieu, use the date statutory notice would have ended. That date applies to the 2-year test, the count of years and the cap [5].

Count full years of service backwards from the relevant date, up to 20 [2][5].

Step 3: Apply the age bands

For each year, allow [2][5]:

• aged under 22: half a week's pay;
• aged 22 to 40: one week's pay;
• aged 41 or over: one and a half weeks' pay.

The employee must reach the band's age before the year starts: someone aged 45 at the relevant date has 4 years at the top rate. The most anyone can get is 30 weeks.

Step 4: Work out a week's pay and apply the cap

Which method applies depends on the working pattern [5]:

• Normal working hours, pay that doesn't vary (s.221(2)). A week's pay is the contractual pay for a normal week.
• Normal working hours, pay that varies with the amount of work done (s.221(3)). Multiply normal weekly hours by the average hourly rate over the 12-week reference period.
• Shift or rota pattern, where hours vary with the time of work (s.222). A week's pay is the average weekly normal working hours over the 12 weeks, at the average hourly rate over those weeks.
• No normal working hours (s.224). A week's pay is average weekly remuneration over the 12 weeks, ignoring any week with no pay and going back further to make up 12.

The 12 weeks end with the last complete week before the calculation date [5]. Cap the result at £751 where the relevant date is on or after 6 April 2026 (£719 before) [4].

In the lumi reward benchmark, the common pay basis for organisations' own redundancy pay is basic salary plus contractual allowances (32.4%), then average earnings over a reference period (29.4%) and pay including regular overtime (27.5%); 3.9% use basic salary only (n = 204).

Step 5: Calculate the statutory amount

Worked example 1: under the cap. Inputs: born 10 June 2001; started 1 September 2019; salary £27,300 (illustrative); given 7 weeks' notice on 28 September 2026, worked.

• Relevant date 16 November 2026; age 25; 7 full years.
• 3 years at one week + 4 at half a week = 5 weeks.
• Week's pay: £27,300 ÷ 52 = £525.00, under the cap.
• Result: 5 × £525.00 = £2,625.00.

Step 6: Deal with notice and notice pay

Statutory minimum notice is one week after one month's service, one week per full year from 2 to 12 years, and 12 weeks after 12 years; contracts can give more [5][6]. A payment in lieu of notice (PILON) ends employment at once and covers basic pay for the notice period, plus contractual benefits [6].

In the lumi reward benchmark, 55.7% of organisations typically use PILON in redundancies, the common answer. 17.4% combine approaches, 11.4% use garden leave and 9.0% have notice worked (n = 201).

Worked example 2: over the cap, with PILON. Inputs: born 20 January 1980; started 15 November 2016; salary £58,500 (illustrative), paid monthly; 3 months' notice with a PILON clause; dismissed with PILON on 30 September 2026.

• 9 full years at dismissal, so statutory notice is 9 weeks. The relevant date moves to 2 December 2026: 10 years, age 46.
• 5 years at one and a half weeks + 5 at one week = 12.5 weeks.
• Week's pay: £58,500 ÷ 52 = £1,125.00, capped at £751.
• Result: £9,387.50. Without the later date: 11.5 weeks, £8,636.50.
• PILON: 3 × £4,875.00 monthly basic pay = £14,625.00.

Step 7: Apply the tax rules

• The first £30,000 of statutory redundancy pay, enhanced severance pay and non-cash benefits, combined, is usually free of tax and National Insurance (NI) [7].
• Above £30,000, deduct income tax. The employer pays Class 1A NI, 15% in 2026/27; the employee pays no NI on it [7][9][10].
• Unpaid wages, holiday pay, bonuses and pay instead of working notice are taxed as earnings, with NI [7].
• Post-employment notice pay (PENP). If you don't give full notice, basic pay for the unworked notice is taxed as earnings, with no £30,000 exemption. PENP = (BP × D ÷ P) − T: last period's basic pay (excluding overtime, bonus, commission and allowances) × days of unworked notice ÷ days in that period, less T. T is other termination payments already taxable as earnings, but excludes holiday pay for a period before the employment ends and any bonus payable for the termination, so neither reduces PENP (s.402D(1); EIM13880 onwards) [8]. For monthly pay and notice in whole months, D is months and P is 1 [8].

In example 2, the PILON is taxed as earnings and the £9,387.50 is tax-free. Had the employer paid one £25,000 severance sum instead, without a PILON clause, PENP would be £4,875 × 3 ÷ 1 − £0 = £14,625.00, taxed as earnings. The other £10,375.00 plus £9,387.50 is £19,762.50, within £30,000.

Step 8: ◆ Decide your enhanced terms

In the lumi reward benchmark, 58.2% of organisations typically offer enhanced redundancy pay on a standard formula, the common answer, and 2.3% on terms varying by grade or tenure: 60.5% (58.2% + 2.3%). 19.0% decide case by case (n = 263) (full findings).

Worked example 3: enhanced terms over £30,000. Inputs: born 5 May 1968; started 3 September 2001; salary £52,000 (illustrative); 12 weeks' notice given on 28 September 2026, worked. Scheme (illustrative): twice the statutory weeks, actual week's pay, maximum 52 weeks.

• Relevant date 21 December 2026; age 58; 25 full years, 20 counted.
• Statutory: 17 × 1.5 + 3 × 1 = 28.5 weeks × £751 = £21,403.50.
• Enhanced: 57 weeks, cut to 52, × £1,000.00 = £52,000.00, including the statutory amount.
• Tax: £30,000 tax-free; £22,000.00 taxable. Employer Class 1A NI: £3,300.00.

Step 9: Check your collective consultation duties

If you propose 20 or more redundancies at one establishment within 90 days [3]:

• consult trade union or elected representatives, aiming to agree ways to avoid or reduce redundancies;
• start at least 30 days before the first dismissal for 20 to 99, or 45 days for 100 or more [3][12];
• notify the Redundancy Payments Service on form HR1 by the same deadlines; failure risks an unlimited fine [3];
• share the reasons, numbers affected, selection method, timetable and redundancy pay calculation [3].

For dismissals taking effect on or after 6 April 2026, a tribunal can award up to 180 days' pay per affected employee for failure to consult, up from 90, with no service requirement [11][12][13]. Threshold changes are expected in 2027 [13].

Step 10: Give a written statement of the calculation

When you pay, give the employee a written statement of how the amount was worked out; failing to, without reasonable excuse, is an offence. Show each input [5].

In the lumi reward benchmark, 75.6% of organisations have a documented redundancy process applied consistently (n = 262). 40.4% say their selection criteria are documented and objective (n = 260).

Checklist

• Collective consultation checked; HR1 sent where needed
• Eligibility checked; relevant date moved later if statutory notice isn't given
• Full years counted back, up to 20, by age band
• Week's pay capped at £751
• PENP worked out where notice isn't given in full
• £30,000 threshold applied; Class 1A NI on the excess
• Enhanced amount at least the statutory amount
• Written statement given

Related

• Enhanced redundancy pay: UK benchmark 2026 — the benchmark findings behind the figures in this guide.
• How to run an annual pay review: process and governance
• How to design on-call and standby pay
• How lumi works: methodology — how these figures are collected and calculated.