How redundancy pay works

Photo: Peter Macdiarmid / Getty.

Redundancy is not a topic any of us like to think about more than absolutely necessary. Nevertheless, it is a fact of working life. And if you are unlucky enough to be one of the approximately 5  in every 1000 UK workers sacrificed to corporate downsizing and restructuring each year, it’s important to be prepared for the mental, emotional and practical impacts of losing your job (as described in this blog). 

The silver lining of a redundancy, however, is that there’s a good chance you’re due a windfall when your redundancy pay is calculated, particularly if you’ve been in your job for a while. This is money designed to tide you over while you find a new post, but it can also free you up to take an extended break from work, review your career or undertake training. While you are unlikely to get rich on the proceeds of a statutory redundancy payout, a decent employer might offer you generous contractual terms that can make a real difference at a difficult time.

Here are some things you need to know about statutory and contractual redundancy pay.

Statutory redundancy pay

WorkSMART’s Redundancy Calculator can give you a very quick answer in terms of the statutory redundancy pay you are entitled to by law. (You can find out exactly how it is calculated here.)  This is normally paid by your employer, unless they have gone bust – in which case the State will foot the bill.

You get statutory redundancy pay if you are an employee with at least two years’ continuous service under your belt. However, if you're a self-employed contractor or a short-term casual worker, you are unlikely to be entitled to statutory redundancy pay.

Contractual terms

Contractual terms cannot legally be worse than your statutory rights, and are often much better. Nevertheless, it is always prudent to familiarise yourself with the details specified in your contract so you know what you can expect. For example:

  • If your employer offers you an alternative job and you turn it down, you may no longer be legally redundant, and would be in the same position as if you had just resigned. If you say the new job is unsuitable but your employer disagrees, you’ll strongly advised to take advice from HR or your union rep before you walk away from the offer.
  • Redundancy pay is normally calculated in complete calendar years and not fractions. If, for instance, you have worked for 10 years and 11 months, it still only counts as 10 years.
  • How does your contract define ‘continuity of service’? Say you worked ten years in one job at the same company, then landed a role in another team and negotiated a stint of time off in between. Depending on how this was agreed, this could constitute breaking the continuity of your service and invalidate your entitlement to redundancy payment related to those first 10 years.
  • Periods of maternity, paternity or parental leave do not break the continuity of employment, and will count towards your years of continuous service. Time spent on strike does not break the continuity of employment either.
  • If your pay varies each week, perhaps because you are paid on a piece-work basis, the amount is averaged over the 12 weeks immediately before the calculation date. Pay for overtime and other bonuses only count if they are guaranteed in your contract of employment.

It is up to your employer to give you your redundancy pay when you leave. You should not have to ask for it. But if you are not paid, then you should make a written request to your employer. If nothing happens, or if you suspect your former employer will try to avoid paying you, you should refer the matter to an employment tribunal within six calendar months of the date your employment ended.

And to end on a bright note, redundancy payments of less than £30,000 are completely tax-free.

Learn more

For further information on your rights and entitlements, visit workSMART’s Redundancy section or download the TUC's comprehensive work rights guide to Facing Redundancy (PDF, 931KB).