UK Redundancy Pay: Statutory Formula and Caps 2026

When an employer makes an employee redundant, the employee is entitled by law to statutory redundancy pay if they meet the qualifying conditions. The amount is calculated by a fixed formula in the Employment Rights Act 1996 — not by what the employer wishes to pay, and not by an HR generosity policy. This article walks through the formula, the 2026 caps, and the most common mistakes employers make when calculating it.

1. The Statutory Right — ERA 1996, Part XI

The right to a redundancy payment derives from Part XI of the Employment Rights Act 1996, in particular s.135. To qualify, the employee must:

• have continuous employment with the same employer (or an associated employer) for at least 2 years ending with the relevant date (s.155);
• be dismissed by reason of redundancy as defined in s.139;
• not fall within an excluded category (e.g., armed forces, share fishermen, certain Crown servants).

Source — Employment Rights Act 1996, Part XI: https://www.legislation.gov.uk/ukpga/1996/18/part/XI

The two-year qualifying period applies regardless of whether the employee is full-time or part-time. There is no working-hours threshold.

2. What is “Redundancy”?

Section 139 defines redundancy as a dismissal “wholly or mainly attributable to” one of three situations:

• Closure of the business — the employer has ceased, or intends to cease, carrying on the business.
• Closure of the workplace — the employer has ceased, or intends to cease, carrying on the business at the place where the employee worked.
• Diminished requirement for the work — the requirements of the business for employees to carry out work of a particular kind, or in the place where the employee worked, have ceased or diminished, or are expected to.

If a dismissal is for any other reason — capability, conduct, misconduct, “some other substantial reason” — it is not redundancy and no statutory redundancy pay is due, although unfair dismissal claims may apply.

3. The Statutory Formula

Section 162 of the ERA 1996 sets out the formula. For each complete year of continuous service:

The total is multiplied by the statutory weekly pay cap (see Section 4 below).

Worked example. An employee aged 45, with 12 years of continuous service, takes the calculation as follows:

• Years of service aged 41+: 4 years × 1.5 = 6.0 weeks
• Years of service aged 22–40: 8 years × 1.0 = 8.0 weeks
• Total: 14 weeks of pay

If the employee’s weekly pay (capped at the statutory limit) is £700, the redundancy payment is 14 × £700 = £9,800.

A maximum of 20 years’ service can be counted (s.162(3)). Service before age 18 is not counted (s.211(3)).

4. The 2026 Statutory Weekly Pay Cap

The weekly pay used in the formula is capped at a level set annually by Order. From 6 April 2026, the cap is £719 per week (figure subject to confirmation in the annual review).

The maximum statutory redundancy payment is therefore:

20 years × 1.5 weeks × £719 = £21,570

Source — Government redundancy pay calculator: https://www.gov.uk/calculate-your-redundancy-pay

The cap applies whether the employee’s actual weekly pay is higher or lower. An employee earning £1,500 per week is treated as earning £719 for redundancy purposes; one earning £400 is treated as earning £400 (no floor).

5. What Counts as “A Week’s Pay”?

Section 221–229 of the ERA 1996 defines “a week’s pay”. The position depends on whether the employee has normal working hours and whether their pay varies with output.

Bonuses, overtime, commission, and shift premiums are normally excluded from “a week’s pay” unless they form part of contractual normal pay.

Important 2024 amendment: Following the Bear Scotland line of cases on holiday pay, certain non-guaranteed but regularly paid amounts must be included in “a week’s pay” for holiday pay purposes. The redundancy pay formula has not been amended to follow this — it still uses the pre-Bear Scotland definition. Tribunal cases continue to push the boundary, but as of 2026, statutory redundancy pay calculations use the older, narrower definition of “a week’s pay”.

6. Continuous Employment — The Trick Cases

The 2-year continuity test in s.155 is straightforward in most cases but trips up the following:

• Multiple employers in a group. Service with associated employers counts for redundancy continuity (s.218(6)). “Associated” is defined narrowly — same controlling shareholder, etc.
• TUPE transfers. Where TUPE applies, continuity is preserved (TUPE Regulation 4(1)). The employee’s start date with the original employer becomes the start date with the new employer for redundancy purposes.
• Maternity, paternity, parental leave. Continuity is preserved during statutory leave (s.212(1)).
• Industrial action. Days on strike are excluded from continuity but do not break it (s.216).
• Casual or zero-hour workers. Continuity is broken if there is no contract during a gap of 1 week or more, unless one of the s.212 saving provisions applies (e.g., temporary cessation of work).

7. The “Relevant Date”

Section 145 fixes the relevant date — usually the date the employment ends. For a dismissal with notice, the relevant date is the date the notice expires; if the employee is paid in lieu of notice (PILON), the relevant date is the actual termination date.

The age of the employee on the relevant date determines the multiplier band for the year ending on that date.

8. Tax Treatment

The first £30,000 of any termination payment is tax-free under ITEPA 2003, s.401. Statutory redundancy pay falls within this £30,000 ceiling. Any excess is taxable as employment income and subject to PAYE.

Crucially, since 6 April 2018, employer’s National Insurance contributions are payable on the excess over £30,000 (FA 2017). Employer-only NI applies — employee NI does not.

Source — HMRC guidance on tax on termination payments: https://www.gov.uk/government/publications/employment-income-manual

9. Who Pays?

The employer pays statutory redundancy pay. If the employer is insolvent and unable to pay, the employee can claim from the Insolvency Service Redundancy Payments Service. The Service pays from the National Insurance Fund and stands subrogated to the employee’s debt against the employer’s estate.

Source — Redundancy Payments Service: https://www.gov.uk/redundant-your-rights/redundancy-pay

10. Suitable Alternative Employment

Section 141 of the ERA 1996 deals with the offer of “suitable alternative employment”. If the employer offers the employee a suitable alternative role and the employee unreasonably refuses it, the employee loses the right to redundancy pay.

What is “suitable” depends on:

• pay and conditions;
• location;
• status (job grade);
• the employee’s circumstances (e.g., caring responsibilities);
• whether a four-week trial period (s.138(2)) was made available.

A suitable alternative role at a 30% pay cut, 100 miles away, in a junior role is not “suitable”. The employer cannot use a low-ball alternative offer to escape the redundancy payment.

11. Common Mistakes — Gyoseishoshi View

• Counting service from age 18 only. Correct — service before 18 is excluded.
• Counting more than 20 years. Cap is 20 years.
• Using uncapped weekly pay. The £719 weekly cap (2026) applies regardless of contractual rate.
• Including bonuses in a week’s pay. Discretionary bonuses are excluded unless contractually pensionable as part of normal pay.
• Forgetting employer NI on the excess over £30,000. A non-statutory enhanced redundancy payment (e.g., 2 weeks per year instead of statutory 1) above £30,000 attracts employer NI.
• Ignoring TUPE start dates. Service with the previous employer counts for continuity.
• Failing the consultation procedure — collective consultation under the Trade Union and Labour Relations (Consolidation) Act 1992, s.188, applies where 20 or more redundancies are proposed at one establishment within 90 days. Missing this triggers a protective award up to 90 days’ actual pay per affected employee, separate from statutory redundancy pay.

12. The MmowW Scrib🐮 Workflow

Cell #15 (UK Employment) calculates statutory redundancy pay from the employee’s date of birth, start date, end date, and weekly pay. It applies the current statutory weekly cap automatically, splits years into the three age bands, applies the 20-year cap, and produces a calculation breakdown showing each year’s contribution. The output bundle includes a settlement statement, a tax computation showing the £30,000 split, and a written notice of redundancy.

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Disclaimer

This article provides legal information, not legal advice. MmowW Scrib🐮 is a document preparation service operated by a licensed Gyoseishoshi (行政書士) office in Japan. We are not UK solicitors or barristers.

Sources

• Employment Rights Act 1996, s.162: https://www.legislation.gov.uk/ukpga/1996/18/section/162
• Employment Rights Act 1996, Part XI: https://www.legislation.gov.uk/ukpga/1996/18/part/XI
• Government — calculate your redundancy pay: https://www.gov.uk/calculate-your-redundancy-pay
• Government — your rights when made redundant: https://www.gov.uk/redundant-your-rights/redundancy-pay
• ACAS — redundancy: https://www.acas.org.uk/redundancy