Redundancy pay

It is reckoned backwards, not multiplied

Almost every explanation of redundancy pay makes it sound like a multiplication: years of service times a rate set by your age. That produces the wrong answer for anybody whose service crosses 22 or 41, which is most people with a real length of service.

Section 162(1) sets out the order and it matters. Take the period of continuous employment ending with the last day, reckon backwards the years of employment inside it, and allow an amount for each one. Section 162(2) then sets that amount by the age during that particular year:

• One and a half weeks' pay for a year aged 41 or over
• One week's pay for a year aged 22 to 40
• Half a week's pay for anything below that

So somebody aged 45 with ten years in gets four years at the higher rate, not five. Reckoning back from their last day the years start at 44, 43, 42 and 41 and then drop to 40. Four at a week and a half plus six at a week is twelve weeks.

The year you turned 41 does not count at the higher rate

The wording is "a year of employment in which the employee was not below the age of forty-one". A year that straddles the birthday is not a year in which they were 41 throughout, so it does not qualify.

The consequence catches people out: somebody aged exactly 41 on their last day has no higher rate years at all. This is the commonest way a redundancy letter comes out half a week too high, and it is why the tool shows the age at the start of every year rather than just a total.

The cap is what makes the figure look wrong

A week's pay is capped at £751 by section 227. Above that, the payment stops tracking the salary entirely.

Somebody on £1,500 a week with twenty years' service at the top band does not get £45,000. They get £22,530, because the calculation never sees anything past the cap. That figure is the hard maximum for statutory redundancy pay and nobody can be paid more of it, whatever they earn and however long they stayed.

Both the cap and the maximum change every April, and the figures in force at the last day of employment are the ones that apply, not the ones in force when notice was given.

Twenty years, and it drops the cheapest ones

Section 162(3) reckons a maximum of twenty years. Because the reckoning runs backwards, the years it discards are the earliest ones, which are the years on the lowest age band. Thirty years of service loses ten half-week or one-week years rather than ten at a week and a half, so the limit costs less than it first appears.

Reduced sick pay does not reduce it

This one is worth real money and both sides get it wrong in the same direction.

Section 221(2): where there are normal working hours and pay does not vary with the amount of work done, a week's pay is the amount payable under the contract for working those hours. Payable, not received.

So somebody made redundant after six months on statutory sick pay, or on half pay under a company scheme, is still calculated on their normal contractual wage. A redundancy payment worked out on their SSP rate is simply wrong. If a figure looks far too low, this is the first thing to check.

Dismissed just short of two years

Statutory redundancy pay needs two years of continuous service at the relevant date. But section 145(5) makes the relevant date the day the statutory notice would have expired, where that is later than the actual last day.

So notice that is not given still counts. Somebody dismissed a fortnight before their two years, owed two weeks of statutory notice, reaches two years anyway. There is a notice period calculator that flags exactly this, and a continuous service checker for what else the service unlocks.

And redundancy pay is not part of the 2027 change

The unfair dismissal qualifying period drops from two years to six months on 1 January 2027.Statutory redundancy pay stays at two years.

Right now both rights sit at two years, so people treat them as one threshold. From January they come apart, and an employee dismissed with a year's service can have an unfair dismissal claim and no statutory redundancy entitlement at all.

Whether the redundancy is genuine is not arithmetic

It works out the statutory minimum from the dates and the wage. It does not decide whether the redundancy is genuine, whether the selection or the consultation was fair, or whether an offer of alternative employment was suitable, all of which are separate questions with their own consequences. A contractual or enhanced scheme can pay considerably more, so check the contract and the handbook before treating this as the figure.