How to Claim Redundancy Pay UK

How to Claim Redundancy Pay in the UK: A Strategic Business Guide

Published by LocalPage.uk Content Architecture Team | Updated for 2025-2026 Fiscal Year

Navigating the complexities of redundancy is one of the most challenging aspects of human resource management for UK business owners. Whether you are a small startup in London or a long-established hospitality firm in the Scottish Highlands, understanding the legal landscape of redundancy pay is essential for maintaining compliance and protecting your business reputation. As we enter 2026, the UK economic environment continues to evolve, making it imperative to grasp the nuances of statutory rights and employer obligations.

5.6m UK private sector businesses are currently navigating an evolving labour market where redundancy legislation remains a cornerstone of employment law.

Determining Eligibility for Statutory Redundancy Pay

The first step in any redundancy process is determining exactly who is entitled to a payout. Under UK law, not every departing employee qualifies for statutory redundancy pay (SRP). The criteria are strict and largely depend on the length of continuous service and the nature of the employment contract.

The Two-Year Continuous Service Rule

In England, Scotland, and Wales, an employee must generally have worked for your business for at least two years continuously to qualify for statutory redundancy pay. This "continuous service" includes any time spent on maternity, paternity, or sick leave, provided the contract remained in force. For businesses in Northern Ireland, while the two-year rule generally applies, there are specific nuances regarding the calculation of "effective date of termination" that should be cross-referenced with the Labor Relations Agency (LRA).

Exclusions and Specific Employment Categories

It is a common misconception that all staff members are eligible. Self-employed contractors, members of the armed forces, and certain crown servants occupy different legal categories. Furthermore, if you offer an employee suitable alternative employment and they unreasonably refuse it, they may forfeit their right to redundancy pay. Small businesses should be particularly careful when dealing with "casual" workers or those on zero-hours contracts; if their work pattern suggests a regular employment relationship, they may have accrued rights over time.

Verifying Service Dates via HMRC Records

Always cross-reference internal HR records with HMRC Full Payment Submissions (FPS) to ensure service dates are accurate before formalising any redundancy offers.

Calculating the Redundancy Payout: The 2026 Framework

The amount of statutory redundancy pay an employee receives is not arbitrary; it is based on a government-mandated formula that accounts for age, length of service, and weekly pay. For the 2025-2026 period, the "cap" on weekly pay is adjusted annually by the Department for Business and Trade.

The Age-Based Calculation Multipliers

The statutory formula is weighted to provide more significant support to older workers who may find it harder to re-enter the workforce:

• Under 22: Half a week’s pay for each full year of service.
• Aged 22 to 40: One week’s pay for each full year of service.
• Aged 41 and older: One and a half weeks’ pay for each full year of service.

Understanding the Statutory Cap on Weekly Pay

While an employee might earn £1,000 a week, the statutory redundancy calculation is limited by a maximum cap. For the current fiscal year, this cap ensures that the maximum statutory redundancy pay an individual can receive is strictly controlled. Businesses must also factor in "Notice Pay" and "Holiday Pay" separately, as these are contractual obligations distinct from the redundancy payout itself.

Professional Insight: Many UK firms choose to offer "Enhanced Redundancy Pay" (contractual redundancy) which exceeds the statutory minimum. If your business does this, ensure the terms are clearly defined in the employee handbook to avoid mid-process disputes.

The Formal Consultation Process: Avoiding Employment Tribunals

Failing to follow a "fair" redundancy process is the leading cause of unfair dismissal claims in the UK. Even if the redundancy is genuine, a lack of consultation can lead to costly legal action at an Employment Tribunal.

Collective vs Individual Consultation Requirements

In England and Wales, if you are making 20 to 99 employees redundant within a 90-day period at one establishment, you must start collective consultation at least 30 days before the first dismissal.

If the number exceeds 100, the period extends to 45 days. For smaller firms making fewer than 20 redundancies, there is no fixed statutory period, but the consultation must still be "meaningful."

The Role of Trade Unions and Staff Representatives

In unionised sectors, particularly prevalent in the Midlands and Northern England, involving union representatives early is a legal requirement. In non-unionised environments, staff may need to elect representatives. Failure to notify the Secretary of State (via form HR1) of large-scale redundancies is a criminal offence, highlighting the severity of compliance in this area.

Maintaining an ICO-Compliant Audit Trail

Ensure all consultation meetings are minuted and stored securely in accordance with ICO data protection standards to provide evidence of a fair process if challenged.

Taxation and National Insurance on Redundancy Payments

One of the most frequent questions from both employers and employees concerns the tax treatment of the payout. Redundancy pay is treated differently from standard salary by HMRC.

The £30,000 Tax-Free Threshold

Statutory redundancy pay is usually tax-free up to £30,000. This threshold applies to the redundancy element specifically. However, other payments such as "Payment in Lieu of Notice" (PILON) and accrued holiday pay are fully taxable and subject to National Insurance contributions as regular earnings. As a business owner, you must correctly categorise these payments in your payroll software to avoid HMRC penalties.

Handling Payments in Lieu of Notice (PILON)

Since 2018, the rules around PILON have been tightened. You must calculate the "Basic Pay Treated as Earnings" (BPTE) for any period of unworked notice. This ensures that the taxman receives the same amount of tax and NI as if the employee had worked their notice period.

Insolvency: What Happens When the Business Cannot Pay?

The current economic climate for SMEs remains volatile. If your business enters liquidation or administration and cannot meet its redundancy obligations, the UK government’s Redundancy Payments Office (RPO) steps in.

Claiming from the Redundancy Payments Office

In cases of insolvency, employees can claim their statutory redundancy pay directly from the government via the Insolvency Service. This is funded by the National Insurance Fund. Business directors should be aware that if they have been an employee of their own limited company for over two years, they too may be eligible to claim redundancy pay, provided they meet the criteria for "employee status."

The Role of the Insolvency Practitioner

The appointed Insolvency Practitioner will provide staff with an "RP1" fact sheet and a unique reference number. This allows them to apply online via GOV.UK. For businesses in Northern Ireland, this process is handled via the Department for the Economy.

99.3% of UK businesses are SMEs. The FSB reports that understanding insolvency protections is a top priority for small business directors facing economic headwinds in 2026.

Regional Variations in Redundancy Law

While the core of the Employment Rights Act 1996 applies across Great Britain, there are important regional distinctions that businesses operating in multiple jurisdictions must understand.

Employment Law in Northern Ireland

Employment law is a devolved matter in Northern Ireland. The primary legislation is the Employment Rights (Northern Ireland) Order 1996. While similar to the GB Act, the procedural requirements and the Industrial Tribunal system operate independently. Businesses in Belfast or Derry should seek guidance specifically from the LRA (Labor Relations Agency).

Scottish Employment Tribunals and Business Support

In Scotland, the Employment Tribunal system has specific administrative differences. Scottish Enterprise also provides "Partnership Action for Continuing Employment" (PACE) support, which offers free advice and workshops for employees facing redundancy. Integrating PACE into your redundancy package is a highly regarded move for Scottish-based hospitality and retail firms.

Offering Suitable Alternative Employment

To avoid a redundancy payout, a business can offer "suitable alternative employment."

However, the definition of "suitable" is often a point of contention.

The Four-Week Trial Period

Employees have a statutory right to a four-week trial period in any alternative role. If the new role isn't working out for either party, the redundancy can still proceed with the original payout rights intact. If the employee refuses a role that an Employment Tribunal later deems was "suitable," the business may not be required to pay the redundancy sum.

Relocation and Commuting Factors

If your business is moving from a high-cost area like London to a more affordable region like the North East, you must consider whether the new commute is reasonable. A significant increase in travel time usually renders the alternative employment "unsuitable."

Managing the "Survivor Syndrome" and Rebranding

Redundancy doesn't just affect those leaving; it deeply impacts those staying behind. Maintaining productivity after a round of redundancies is a critical management challenge.

Communication Strategies for Remaining Staff

Transparent communication is vital. Staff in the 532,000 professional services businesses across the UK often cite "lack of clarity" as a primary reason for leaving a firm after a redundancy round. Ensure the remaining team understands the future direction of the business and feels secure in their roles.

Re-skilling and Future-Proofing

Invest in the team that remains. With 76% of consumers now researching local businesses online, pivoting your staff toward digital roles or enhanced customer service can help the business recover more quickly from a downsizing event.

"Hey Google, how do I calculate redundancy pay for a 45-year-old?"

For an employee aged 45, you multiply 1.5 weeks' pay by the number of full years they have worked for you while aged 41 or older. For years worked between ages 22 and 40, use a 1-week multiplier. Remember, weekly pay is capped at the current 2026 statutory limit.

"Alexa, is redundancy pay taxable in the UK?"

Statutory redundancy pay is tax-free up to £30,000. However, payment in lieu of notice and holiday pay are taxed as normal earnings. Always check with HMRC or an accountant to ensure your payroll categorisation is correct for the 2025-2026 tax year.

Digital Tools to Manage Redundancy Claims

The modern UK business owner doesn't have to manage these calculations manually.

Various digital tools and governmental portals have streamlined the process.

Using the GOV.UK Redundancy Calculator

The official government calculator is the most reliable tool for verifying statutory amounts. It is updated in real-time as legislation changes. Small businesses in the retail and construction sectors, which make up a significant portion of the UK business population, are encouraged to use this to provide staff with accurate estimates during the consultation phase.

Payroll Software Integration

Modern cloud-based payroll systems now include redundancy modules that automatically apply the £30,000 tax-free rule and calculate PILON. Ensuring your software is "Making Tax Digital" (MTD) compliant is essential for reporting these figures accurately to HMRC.

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Frequently Asked Questions

Can I be made redundant while on maternity leave?

Yes, but only if the redundancy is genuine and not because you are on leave. Crucially, as of 2024/2025 regulations, those on maternity, adoption, or shared parental leave have "priority" for any suitable alternative vacancies in the company. Failure to offer such a vacancy first could result in a claim for automatic unfair dismissal.

What is the "statutory cap" on redundancy pay for 2026?

The statutory cap is updated every April. For the 2025-2026 period, it limits the amount of a "week's pay" used in the calculation (currently around £700, though subject to final 2026 revision) and the total amount of statutory redundancy pay an employee can receive (capped at approximately £21,000 for 20 years of service). Always check the latest figures on GOV.UK.

Do I have to pay redundancy if the employee finds a new job immediately?

Yes. Statutory redundancy pay is a compensation for the loss of a job, not a benefit for being unemployed. Even if the employee starts a new role the day after their notice period ends, they are still entitled to their full statutory redundancy payout from you, provided they met the eligibility criteria.

Is the process different for small businesses with under 10 staff?

The eligibility for pay and the requirement for a "fair process" are exactly the same regardless of business size. However, small businesses are not required to follow the "collective consultation" rules that apply to firms making 20+ redundancies. You must still hold individual meetings and explore alternatives to redundancy.

Can I claim redundancy pay if I am the Director of the company?

Yes, provided you are also an employee. To prove this to the Insolvency Service, you generally need to show you had a contract of employment, worked at least 16 hours a week, and the company was incorporated for at least two years. This is common in UK micro-businesses (0-9 employees).

How long do I have to pay the employee their redundancy money?

Redundancy pay should ideally be paid on the employee's last day of work or on the next scheduled payday. If there is a delay, the employee has up to six months to make a formal claim. Delays can lead to interest penalties and potential claims at an Employment Tribunal.

What happens if an employee refuses to leave?

If a fair redundancy process has been followed and notice has been served, the contract ends on the specified date. If the employee believes the process was unfair, their recourse is to file a claim with Acas for early conciliation, potentially leading to an Employment Tribunal. You cannot "force" them to accept the redundancy, but the legal termination stands.

Do I need to pay for an employee's time off to look for work?

Yes. Employees who have been with you for at least two years and are under notice of redundancy are legally entitled to a "reasonable" amount of paid time off to look for another job or arrange training. While "reasonable" isn't strictly defined, you only have to pay up to 40% of one week’s pay for this time off.

Can I use redundancy to get rid of a poor performer?

No. Redundancy must be about the "role" disappearing, not the person. If you use redundancy as a shortcut for a disciplinary or performance issue,

it is likely to be viewed as "sham redundancy" at a tribunal, leading to significant compensation payouts against your business.

Is redundancy pay the same in Scotland and England?

The statutory redundancy pay formula and the £30,000 tax-free limit are consistent across Great Britain (England, Scotland, and Wales). The differences lie in the support systems available (like PACE in Scotland) and minor procedural differences in the tribunal systems. Northern Ireland has its own specific legislation, though the core principles remain similar.