Redundancy is a dismissal because the employer needs fewer people to do a particular kind of work, or no longer needs the work done at a particular place. An employee with 2 years' continuous employment is entitled to statutory redundancy pay. That is half a week's pay, one week's pay or one and a half weeks' pay for each full year of service, depending on age, with service capped at 20 years and a week's pay capped at £751 for dismissals on or after 6 April 2026. The maximum statutory payment is therefore £22,530. The procedure matters as much as the pay. If 20 or more redundancies are proposed at one establishment within 90 days, collective consultation applies, and failing to consult can now cost up to 180 days' pay per employee.
The redundancy procedure, step by step
A fair redundancy procedure usually follows this order:
- Identify the business reason. Record why fewer roles are needed, and which roles or sites are affected;
- Define the pool. Decide which employees do similar work and should be considered together. A pool is not needed where a whole operation closes or a single role disappears;
- Agree selection criteria. Use objective measures such as skills, qualifications, appraisal markings and disciplinary records. If "last in, first out" would mean only younger staff are selected, it can amount to age discrimination;
- Consult. Explain the proposal to each affected employee, and to their representatives where the collective rules apply, before any decision is final;
- Look for alternatives. Offer any suitable alternative vacancy, with a 4-week trial period;
- Confirm in writing. Give notice, with a breakdown of redundancy pay, notice pay and holiday pay, and a right of appeal.
Selection cannot be based on age, sex, race, disability, religion or belief, sexual orientation or other protected grounds. Nor can it be based on pregnancy or maternity leave, paternity, parental or dependants leave, trade union membership, whistleblowing or part-time or fixed-term status. Selecting someone on any of those grounds makes the dismissal unfair, and selection because of a protected characteristic such as age, sex or disability is also unlawful discrimination.
Collective consultation and form HR1
Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 applies where an employer proposes to dismiss 20 or more employees at one establishment within 90 days or less. Consultation must be with trade union representatives or elected employee representatives. It must cover ways of avoiding the dismissals, reducing the numbers and mitigating the consequences, and be carried out with a view to reaching agreement.
| Proposed redundancies at one establishment | Consultation starts at least | HR1 to the Redundancy Payments Service |
|---|---|---|
| 20 to 99 | 30 days before the first dismissal | 30 days before the first dismissal |
| 100 or more | 45 days before the first dismissal | 45 days before the first dismissal |
The HR1 must also be sent before any notice of dismissal is given, and a copy must go to the representatives. Each site counts separately. Failing to notify without good cause is a criminal offence. Failing to consult exposes the employer to a protective award, and the Employment Rights Act 2025 doubled the maximum protected period from 90 days to 180 days for dismissals taking effect on or after 6 April 2026. For a group of 30 employees on £600 a week, a full award would be roughly £15,400 each, or around £463,000 in total. The award is a week's pay for each week of the protected period, and section 227 does not apply its £751 cap to protective awards.
Below 20 redundancies there are no statutory collective rules. However, a dismissal without individual consultation will almost certainly be unfair for anyone with unfair dismissal rights, which currently means 2 years' service. The Employment Rights Act 2025 cuts that period to 6 months for dismissals with an effective date of termination on or after 1 January 2027 (commenced by SI 2026/559); until then the 2-year rule applies.
How statutory redundancy pay is calculated
Section 162 of the Employment Rights Act 1996 counts back from the date employment ends, year by year, and allows:
| Each full year of service in which the employee was | Entitlement |
|---|---|
| Under 22 | Half a week's pay |
| 22 to 40 | One week's pay |
| 41 or over | One and a half weeks' pay |
Only the most recent 20 years count, and a week's pay is capped at £751 (section 227, as uprated from 6 April 2026). Weekly pay is the average over the 12 weeks before the employee was given notice.
Worked example. Priya is 45, has exactly 10 years' service and earns £900 a week. Four of those years were at age 41 or over (4 × 1.5 = 6 weeks) and six were between 35 and 41 (6 × 1 = 6 weeks), so she is due 12 weeks. Her pay is capped at £751, so statutory redundancy pay is £9,012.
No statutory payment is due if the employee unreasonably refuses suitable alternative employment, or if the dismissal is really for misconduct. A claim must be made, or the employee must refer it to a tribunal, within 6 months of the end of employment.
Notice, time off and alternative jobs
- Statutory notice. One week if employed between one month and 2 years, then one week per complete year up to a maximum of 12 weeks (section 86). The contract may give more, but never less;
- Notice pay. Pay through the notice period, or a payment in lieu if the contract allows or the employee agrees;
- Time off to job hunt. An employee with 2 years' service by the end of their notice is entitled to reasonable paid time off to look for work or arrange training. The employer's liability to pay is capped at 40% of a week's pay;
- Trial period. An employee who accepts an alternative role has a 4-week trial period. If the role is unsuitable and they give notice within it, they keep their right to redundancy pay.
Employees with extra protection
Where a role becomes redundant during pregnancy, maternity leave or the additional protected period afterwards, the employee is entitled to be offered any suitable available vacancy, with a new contract starting when the old one ends. The additional protected period runs to 18 months from the first day of the expected week of childbirth, or from the actual date of birth if the employee has notified it. GOV.UK confirms that the duty to offer a suitable alternative job also applies to employees on, or recently back from, other types of parental leave. Losing track of these dates is one of the most common ways an otherwise sound redundancy exercise goes wrong.
Tax and payroll treatment
Statutory redundancy pay is exempt from income tax under section 309 of ITEPA 2003, and the first £30,000 of a qualifying termination payment is not taxed (section 403). Tax and National Insurance on the rest of the package depend on what it contains, such as holiday pay, unpaid wages, notice pay and bonuses. Getting the split right before the final payslip saves corrections later. Our guide to termination payments sets out the ordering rules.
Sources: GOV.UK Redundancy: your rights and Making staff redundant; sections 162 and 227 of the Employment Rights Act 1996; sections 188, 189 and 193 of TULRCA 1992; and regulation 10 of the Maternity and Parental Leave etc. Regulations 1999.
Acumon calculates redundancy, notice and holiday pay and processes leavers through outsourced payroll. Where an exit package includes a settlement payment, our employment tax team can check the treatment before it is paid.