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What is Statutory Redundancy Pay?
Statutory Redundancy Pay (SRP) is a legal entitlement for employees in the UK who are made redundant and have worked for their employer for at least two full years. It is a tax-free lump sum payment calculated based on the employee's age, length of service, and weekly pay, subject to a statutory cap. The rules are set out in the Employment Rights Act 1996 and apply across England, Wales, Scotland, and Northern Ireland, though the specific weekly pay limit is set by separate orders.
How is Redundancy Pay Calculated?
The calculation follows a specific formula set out in law. You need three key pieces of information: the employee's age at the date of dismissal, their full years of service (capped at 20), and their gross average weekly pay. The calculation involves four steps:
- Determine the capped weekly pay: Use the employee's gross average weekly pay, but not more than the current statutory limit. For the 2026/27 tax year, this limit is £700 per week for all UK nations. If an employee earns £900 per week, only £700 is used in the calculation.
- Find the age multiplier: For each full year of service, the employee gets a certain number of weeks' pay based on their age band:
- Under 22 years old: 0.5 weeks' pay per year.
- 22 to 40 years old: 1 week's pay per year.
- 41 years old and over: 1.5 weeks' pay per year.
- Calculate total weeks of entitlement: Multiply the age multiplier by the number of full years of service. Remember, only service up to 20 years counts, and the employee must have at least 2 years of service to be entitled at all. If someone worked for 25 years, only 20 years are used. If they worked for 1 year, the total weeks are 0.
- Calculate the total payment: Multiply the total weeks by the capped weekly pay. The result is the tax-free statutory redundancy pay lump sum.
Worked Example
Let's follow a detailed example. Sarah is 45 years old and has worked for her employer in Wales for 10 years. Her average weekly pay is £800. The statutory weekly limit for the 2026/27 tax year is £700.
- Step 1: Capped weekly pay: Her pay of £800 exceeds the £700 limit, so the capped pay is £700.
- Step 2: Age multiplier: As she is over 41, her multiplier is 1.5 weeks per year.
- Step 3: Total weeks: 1.5 weeks/year × 10 years = 15 weeks.
- Step 4: Statutory Redundancy Pay: 15 weeks × £700 = £10,500.
Sarah is entitled to a tax-free redundancy payment of £10,500.
Common Scenarios and Important Details
Employees under 22: They receive half a week's pay per year of service. A 20-year-old with 4 years of service earning £400 per week would get: 0.5 × 4 = 2 weeks; 2 × £400 = £800. Their youth results in a lower payment even with several years of service.
Long-serving employees: The 20-year cap is crucial. An employee aged 55 with 30 years of service will have their service capped at 20 years. Their calculation would be: 1.5 (multiplier) × 20 years = 30 weeks, multiplied by the capped weekly pay.
High earners: The weekly pay cap significantly affects high-income employees. An executive earning £2,000 per week will have their redundancy pay calculated on the £700 limit, not their actual salary, which can result in a much lower payment than expected.
No entitlement: Employees with less than 2 full years of service are not entitled to any statutory redundancy pay, regardless of their age or weekly pay.
Northern Ireland, Scotland, England, and Wales: While the calculation formula is identical across the UK, the weekly pay limit is set by separate legislation. Currently, the limits are aligned at £700, but they can diverge in future years, which is why selecting the correct nation is important.
Next Steps: The Redundancy Notice
Once you have calculated the statutory redundancy pay, the formal process requires issuing a Redundancy Notice to the employee. This document is critical as it outlines the reasons for redundancy, the last day of employment, the notice period (which is separate from redundancy pay), and details of the final payment, including the redundancy pay calculated here. Using a proper, legally-vetted template ensures all requirements under the Employment Rights Act 1996 are met, helps avoid disputes, and provides clarity for both employer and employee. The notice should be provided in writing and within the correct timeframe.