How Does Redundancy Pay Work in the UK?

The letter lands, and somewhere in it there is a number. Twelve weeks' pay, or eight, or a figure that looks large until you work out it has to cover the months before your next payslip. Nobody sits you down and explains how that number was reached, whether it is all you are owed, or what you are allowed to do next. You get a calculator link and a "we wish you well".

So here is the plain version, for a UK worker who has just been made redundant and needs to know what is actually coming and what to watch out for.

The takeaways

• Statutory redundancy pay needs two years' continuous service and follows a fixed formula: your age band times complete years worked (capped at 20) times your weekly pay, which is itself capped at £751 a week and £21,570 in total from 6 April 2026 (GOV.UK).
• It is one of three separate pots. Notice pay (or pay in lieu) and unused holiday are paid on top, but only redundancy pay is tax-free up to £30,000; pay in lieu of notice and holiday are taxed as normal income (HMRC).
• If you work in the NHS, doing any NHS work inside four weeks of your leaving date, including a single bank shift, can cost you the whole redundancy payment (NHS Employers). Protect that gap.

How is statutory redundancy pay calculated in the UK?

You qualify once you have two or more years of continuous service, and the sum is set by a formula, not by negotiation. For each complete year you worked while under 22 you get half a week's pay; for each year between 22 and 40, one week; for each year at 41 or over, one and a half weeks. Acas and GOV.UK both spell this out the same way.

Three limits then bite. Only your last 20 years of service count, even if you gave them 30. Your "week's pay" is capped (£751 from 6 April 2026), so high earners stop accruing above that line. And the total statutory payment is capped at £21,570 for 2026. Your weekly pay is the average of the 12 weeks before your redundancy notice. Run your own figures through the free GOV.UK calculator before you accept any number an employer quotes.

Is redundancy pay the only money you're owed?

No, and conflating the pots is where people lose out. Redundancy pay compensates you for losing the job. On top of it you are still owed your notice period, worked or paid as pay in lieu (PILON), plus any holiday you accrued but did not take. Some contracts or company policies also promise enhanced redundancy above the statutory floor, so read yours.

The tax treatment splits along the same lines, and this catches people. Genuine redundancy pay is tax-free up to £30,000 (HMRC). But PILON, holiday pay and any bonus are treated as normal earnings, taxed through PAYE with National Insurance deducted. So a "£25,000 package" is not £25,000 in your account if a chunk of it is notice and holiday. Ask for a written breakdown of which pot each amount comes from before you sign anything.

Why can an NHS bank shift cost you your redundancy pay?

Because NHS redundancy terms attach a condition most people never read. Under the NHS redundancy arrangements, the payment assumes you have actually left NHS employment, and returning to any NHS work, including a single bank or agency shift, within four weeks of your termination date can require you to repay it. The RCN and NHS Employers both flag this four-week rule.

It sounds harsh, and it trips up nurses and admin staff who pick up a shift to bridge the gap. If you are leaving an NHS role with a redundancy payment, keep the four weeks clear of anything that counts as NHS work, then go back afterwards if you want to. A separate rule applies to Mutually Agreed Resignation Scheme (MARS) exits, where returning within a longer window (often six months) can trigger clawback, so check which scheme you are actually under.

What do you tell an interviewer about being made redundant?

Keep it short, factual, and pointed at the future. Redundancy is a decision about a role, not a verdict on you, and interviewers know that. Indeed's UK career advice notes they mostly ask to confirm the exit was a business call rather than a performance one. One clean sentence does it: "My role was cut in a restructure," then move straight to what you are looking for next.

Do not volunteer a long backstory or run down your old employer, and do not hide it either. Most UK employers take references, and a reference will usually confirm a redundancy, so a version that clashes with the record costs you more than the redundancy ever would. Honest and brief beats defensive every time.

When you do start applying again, the real grind is tailoring a CV and cover letter to each posting after a knock like this. That is the part I built Jobscalr to take off your plate: it rewrites your existing CV around one specific job posting and drafts a cover letter to match, so you are editing a real draft instead of staring at a blank page.

Common questions about UK redundancy pay

Do you get redundancy pay with less than two years' service?

Not statutory redundancy pay, which requires two years of continuous service. You are still owed your contractual or statutory notice (or pay in lieu) and any unused holiday, and some employers offer discretionary payments, but there is no legal redundancy entitlement below the two-year mark.

Is redundancy pay taxed in the UK?

Genuine redundancy pay is tax-free up to £30,000 (HMRC). Anything above £30,000 is taxed, and pay in lieu of notice, holiday pay and bonuses are always taxed as normal earnings through PAYE, regardless of the £30,000 threshold. That is why the headline package figure and your actual bank deposit differ.

How long do you have to be employed to get statutory redundancy pay?

Two years of continuous service with the same employer, counted up to the date your notice period ends. The 12 weeks before your redundancy notice set your "week's pay" for the calculation, and only your final 20 years of service count toward the total.

Can I start a new job before my redundancy is finalised?

Usually yes for a non-NHS role; redundancy pay is not conditional on staying unemployed. The exception is NHS work, where the four-week rule (and MARS clawback windows) can require repayment if you return too soon. Outside the NHS, check your settlement agreement for any specific restriction before you sign.