If you’re facing redundancy, you’re probably wondering, “How is my redundancy payment calculated?” This guide will help you understand each component of your redundancy package and calculate your potential entitlement and even give you some ideas for negotiating your package.

Let’s dive in.

How is My Redundancy Payment Calculated? The Core Components

1. Statutory Redundancy Pay

This forms the foundation of how your redundancy payment is calculated. To be eligible, you must have at least two years of continuous service. Here’s how it’s calculated:

• For each full year of employment when you were aged between 17 and 21: 0.5 week’s pay
• For each full year of employment when you were 22-40: 1 week’s pay
• For each full year of employment when you were 41 or older: 1.5 week’s pay.

The maximum length of service considered is 20 years, and the current maximum weekly pay for this calculation is currently £719 (as of April 2025). Note that this figure is reviewed annually, typically in April, and may change.

Example calculation:
Let’s say you’re 45 years old with 10 years of service, earning £900 per week:

• 6 years (age 35-41) at 1 week’s pay: 6 x £719 = £4,314
• 4 years (age 41-45) at 1.5 week’s pay: 4 x £719 x 1.5 = £4,314
• Total statutory redundancy pay: £8,628

If you need help calculating your statutory redundancy payment, this calculator on the Government website is useful.

2. Notice Period Compensation

When calculating how your redundancy payment is determined, don’t forget your notice period. You’re entitled to either:

• Work and be paid for your notice period, or
• Receive Pay in Lieu of Notice (PILON)

Your notice period is the greater of:

• Your statutory notice (1 week per year of service, up to 12 weeks), or
• Your contractual notice.

How PILON is to be calculated will usually be set out in your employment contract. This could be based on your normal salary only, or it might include regular overtime, contractual bonuses and a payment in lieu of benefits. If your contract does not include a right for the employer to terminate immediately and pay a PILON, or if it doesn’t specify what is to be included in PILON, then you may be entitled to have these items included in your PILON.

Important: Always check your employment contract for specific terms related to notice periods, as these can vary.

3. Pay in Lieu of Unused Holiday

In understanding how your redundancy payment is calculated, remember unused holiday. You’re entitled to be paid for any accrued but untaken holiday up to your termination date. This is calculated as:

(Annual holiday entitlement / 12) x Number of months worked in the holiday year = Pro-rata entitlement
Then subtract any holidays taken to find your remaining days.

Example: If you have 28 days annual leave, worked 6 months, and have taken 10 days:
(28 / 12) x 6 = 14 days pro-rata entitlement
14 – 10 = 4 days to be paid

For employees that work five days a week, pay in lieu of holiday is usually calculated as 1/260th of annual salary per day.

Additional Factors in How Your Redundancy Payment is Calculated

4. Ex Gratia Payments

Some employers offer additional, discretionary payments. While not mandatory, these can significantly impact how your redundancy payment is calculated. These are often negotiated and may be based on factors like length of service or to incentivise acceptance of the redundancy terms.

Example: An employer might offer an ex gratia payment of one month’s salary for every five years of service. Alternatively, a lump sum might be offered to employees who agree to waive their right to claim unfair dismissal and/or other claims against the company.

5. Contractual Entitlements

Your employment contract may provide enhanced redundancy terms. Check your contract to see if it offers:

• Additional weeks of pay per year of service
• Uncapped weekly pay for calculations
• No maximum years of service cap

These can substantially increase how your redundancy payment is calculated. Additionally, some employers have redundancy policies that go beyond statutory requirements, so it’s worth checking if your employer has such a policy.

6. Bonuses and Benefits

When considering how your redundancy payment is calculated, don’t forget about:

• Pro-rata bonus payments for the portion of the year worked
• Continued pension contributions during your notice period
• Any other contractual benefits that may be paid in lieu

The inclusion of bonuses and benefits depends on the terms of your employment contract, so be sure to review it carefully. Even if there is no contractual right to be paid in lieu of bonuses or benefits on termination, some employers are willing to include these in the total redundancy package.

Tax Implications on How Your Redundancy Payment is Calculated

Understanding tax treatment is crucial:

• Statutory redundancy pay and ex gratia payments are tax-free up to a combined total of £30,000
• Any amount over £30,000 is taxable as income
• PILON and holiday pay are usually taxable as income

Note: Tax situations can be complex and vary based on individual circumstances. We recommend seeking personalized tax advice to understand your specific tax situation.

For more information on how termination payments are taxed, see our blog post: Tax on Termination Payments.

Get Expert Help to Calculate your Redundancy Payment

While this guide provides a detailed overview of how your redundancy payment is calculated, every situation is unique. Factors like your specific employment contract, company policies, and individual circumstances can all affect how your redundancy payment is calculated. This guide is for information purposes only and is not legal advice.

The expert settlement agreement solicitors at CheckMySettlement.com are here to help you understand exactly how your redundancy payment is calculated and ensure you receive fair compensation. We can review your specific situation, explain any complex calculations, and even negotiate on your behalf to maximize your settlement.

Don’t risk leaving money on the table. Book a meeting with one of our specialists today and gain complete clarity on how your redundancy payment is calculated. Let CheckMySettlement.com guide you through this challenging time and secure the settlement you deserve.

Need more information?

Learn about the basics of settlements: Settlement Agreement 101

Get some negotiation tips: How Can I Negotiate My Redundancy Package?

Find out more about tax: Tax on Termination Payments: what you need to know