What is redundancy pay and how much will you get?

Facing redundancy can be intimidating, so it’s important to establish your rights, your status and your strategy.

If you are made redundant, you may be entitled to redundancy pay.

Redundancy packages are not set in stone. They vary according to company, sector, your exact role and level of seniority, and how long you have been in position.

Fundamentally it’s important to remember that redundancy is negotiable so you don’t necessarily have to agree to the first offer on the table.

Take stock and take time to understand your individual circumstances – take a close look at the cards you hold. 

What exactly is redundancy pay and am I entitled to it? 

There are essentially two types of redundancy pay: statutory and contractual.

Statutory redundancy is what you are entitled to according to the law. Your employer must pay you this if you have been employed continuously for two years, and there is a genuine need to make you redundant.

Contractual redundancy is for you if your employer doesn’t renew a fixed-term contract of two years or more. You will also be entitled to this if a series of shorter contracts that follow on from each other add up to two years or more. 

In some circumstances, you can lose your right to redundancy pay, even if you fulfil the criteria.

This could happen if you turn down a job that your employer offers you without good reason, or if you simply find another job before your current one comes to an end.

Naturally if you’re fired you could lose the right to redundancy too. 

As mentioned, you need to have been working for at least two years to be eligible for redundancy pay, but there are further reasons why you won’t be entitled to it.

These include being self-employed, working as a police officer or in the armed forces and being a Crown servant, parliamentary employee or holder of public office.

If you are a domestic worker for your own family or an employee of a foreign government, you will not be eligible either. 

How does redundancy pay work? 

You should receive redundancy pay in the same way that you received your wages – straight into your bank account, for example.

There should also be a clear written statement that outlines exactly how your redundancy was calculated. 

Sometimes an employer might fail to pay your redundancy settlement, and if you encounter this problem there are some steps you can take.

Firstly, write to your former employer outlining what you believe you’re entitled to, with evidence to back up your claim if you have it.

If this doesn’t work you can contact Acas (the Advisory, Conciliation and Arbitration Service), which provides independent support in employment disputes.

Acas will find out if the dispute can be resolved without going to a full tribunal.  

If this doesn’t resolve the problem you may have to take your employer to a tribunal, although this should be seen very much as a last resort, because it can be stressful and expensive.

We would recommend that you have a chat with your local Citizens Advice professionals before pursuing this option. 

How much is redundancy pay?  

If you’re made redundant, your redundancy settlement will be based on your earnings before tax – your gross pay. It’s also affected by your age.

Up to the age of 22, you’ll get half a week’s pay for each full year that you’ve worked.

Between 22 and 40 the figure will be calculated using one week’s pay for each year’s employment.

Above 41, it will be one-and-a-half weeks. 

Here's a quick rundown of how much redundancy pay you'll be entitled to:

You won’t pay any income tax on the first £30,000 of statutory redundancy payments, but there are some limits that influence the amount you can receive.

There is a maximum of £544 a week, and you will only be paid for 20 years’ work.

So, if you’ve been with an employer for 25 years, the last five years will not be included in the calculations. 

To get an idea of how much redundancy money you would receive given your individual circumstances, go to the redundancy pay calculator at GOV.UK. 

When should I receive my redundancy payment?  

Your employer should make this payment either on the day that you leave work, or on a mutually agreed date soon afterwards.

If there are any unexpected or unexplained delays, you can write to your employer personally or contact Acas as we’ve discussed above. 

Who pays redundancy when a business closes? 

Don’t worry - if your employer goes out of business, you’ll still receive the statutory redundancy pay owed to you, plus any outstanding holiday pay.

The only difference is you’ll need to claim what you’re owed from the Insolvency Service instead of your employer.

For this service to help you, your employer must be unable to pay you because of insolvency.

To get going, you need to obtain a case reference number from the Insolvency Service, which will then make it possible for you to make your claim online at GOV.UK. 

Get the experts on side for life’s key moments and big decisions 

If you’re facing possible redundancy or you’re worried about it, your most valuable asset is knowledge.

As with all life’s big events or turning points, it pays to seek out expert advice, so that you understand your rights and options.

The amount of redundancy pay you get is dependent on many factors and, vitally, it is negotiable.  

For trusted, regulated advice on planning for your financial future, Unbiased has 27,000 independent financial professionals across the country.

Let us match you to your perfect financial adviser.