Contractual Redundancy Pay

Contractual redundancy pay is payment given to employees who are made redundant, as outlined in their contract. It usually exceeds statutory redundancy pay and is based on factors like length of service and salary.

Croner are experts when it comes to HR, health and safety, employment law, and managing redundancy, call our team today on 01455 858 132.

At Croner, we know that considering redundancies is never easy and is often stressful and overwhelming. Whilst avoiding redundancies may be the easier choice, we understand that they are often inevitable for your business to survive and succeed.

When this happens, there are certain requirements you must follow to remain legally compliant. One of the most important aspects is redundancy pay; it must be paid to the correct employee and in the correct manner.

An employee’s statutory rights should always be observed, or you could end up facing damaging claims or even an employment tribunal. This will all lead to fines and reputational damage which could be detrimental to your business.  

• Statutory redundancy pay
• Contractual redundancy pay
• How much redundancy pay can you get?
• When is redundancy pay given?
• How do you calculate redundancy pay?
• What is the law on redundancy pay?
• How to manage statutory redundancy pay in the workplace
• Is redundancy the same as layoffs or short time working?
• Get expert advice on redundancy pay with Croner

What is redundancy pay?

Redundancy pay is the payment made to eligible employees who have been made redundant. There are two types of redundancy pay: statutory and contractual redundancy pay.

Statutory redundancy pay

Statutory redundancy pay (SRP) is a payment some employees are legally entitled to when they're made redundant. Why not use our redundancy pay calculator to work out how much your employee is entitled to?

Only employees with at least two years of service are entitled to statutory redundancy pay. They also need to have an 'employee' status outlined in their employment contract.

Redundancies should only be used as a last resort, but they are often unavoidable to keep your company afloat. However, you should first try to provide suitable alternative employment to the employee in question if it’s available. If the employee rejects your offer of alternative work, they may lose their right to statutory redundancy pay.

Contractual redundancy pay  

Contractual redundancy pay is a payment that employees are contractually entitled to when they're made redundant. This payment is usually agreed to in a written statement. For example, an employment contract or staff handbook.

If employed for more than two years, contractual redundancy pay cannot be less than the statutory minimum amount. It’s usually paid as a bigger lump sum or as a payout, regardless of employment status.

How much redundancy pay can you get?

As of 2025, the maximum statutory redundancy pay you can set per week is £719, and the maximum redundancy payment, per person, per employment, is £21,570.

The maximum length of service years required to get statutory redundancy payment is 20 years. Meaning, if an employee had the same job for 21 years, they'll only be entitled to payments for 20 of them.

Typically, the minimum length of service years to a company to qualify for the maximum statutory redundancy amount is two years. Remember, this would only apply if the worker earned an average weekly pay of £719. However, there can be instances where receiving the full maximum will depend on individual circumstances.

When is redundancy pay given?

Usually, redundancy pay is paid after an employee's notice period has come to an end, such as on their last day of employment.   

A statutory notice period can vary depending on how long the employee has been employed with you. The statutory notice periods are listed below:

• Less than one month = no notice.
• One month to two years = one weeks’ notice.
• Over two years = one week per year of service up to 12 weeks.

A notice period can also be set by you for a set period, such as 12 weeks. Make sure to include how long your notice period will be in your employment contract. 

Employees are also entitled to notice pay and are usually paid this all at once.

How do you calculate redundancy pay?

The redundancy payment calculation is given based on an employee's age, service years, and weekly pay before tax, or 'gross pay'. (Weekly pay also includes regular overtime, bonuses, and commission).  

Here’s a general calculation for redundancy pay:

• Half a week’s pay for each full year they were under 22.
• One week’s pay for each full year they were 22 or older, but under 41.
• One and half weeks’ pay for each full year they were 41 or older.

What is the law on redundancy pay? 

If an employee is eligible, then they must receive their redundancy pay from you as their employer. If they don’t, this could lead to claims of an unpaid redundancy via an employment tribunal. If the claim is upheld, you could be forced to pay the statutory amount in full.

Croner are well experienced when it comes to employment tribunals. Get in touch with our experts now for more information on 01455 858 132.

Here’s some more information on employment rights during redundancies:

Discrimination

Employees are legally protected from unlawful discrimination during redundancy procedures. You cannot treat employees unfavourably against their protected characteristics. For example, you can't make them redundant because of their age or for being on maternity leave.

Notice period

Redundancy is considered another form of dismissal. So, if employees are facing redundancy, they have a legal right to a redundancy notice period. Along with redundancy payment, they're also entitled to notice pay during this time as well.

Holiday pay

Employees can still accrue statutory holiday pay during their redundancy process. If an employer owes holiday pay, they must pay it or let employees use it before being made redundant.

Paid time off to look for work

Only employees with two years of service can get paid time off to look for new work. Regardless of whether they find a new job or not; they're legally entitled to this form of temporary leave.

Pay in lieu of notice (PILON)

During a redundancy notice period, an employer may offer pay in lieu of notice (or PILON). Pay in lieu of notice is given to employees to end their contracts without having to fulfil their statutory notice period.

How to manage statutory redundancy pay in the workplace

Every employer must follow a fair and legal redundancy process.

Redundancy pay isn't always straightforward, so it’s important to take the time to make sure you’re paying redundancy pay the right way.

How do you manage redundancy pay in the workplace?

An agreed termination date

Once you’ve fairly and considerately selected the employees to make redundant, you should decide on a termination date. Both you and the employee must be aware of this date as being the final day of their employment with your company. You must also provide the redundancy pay on this termination date or on an agreed relevant date after this.

Discuss tax deductions   

It's important that employees know how much statutory redundancy pay is and that they are subject to tax deductions. Tax payments are usually highlighted in payslips, but it's good to let them know in person too.

If redundancy pay is under £30,000, it's considered to be tax-free. Anything over this amount will be taxed just like their normal pay. Usually, this tax is paid through HM Revenue and Customs. For example, through an Income Tax or National Insurance contribution.

Discuss non-eligible employees    

Remember, not all employees can get statutory redundancy pay - even if they have certain requirements, like status or service years. Statutory redundancy pay isn't available for:

• Employees with less than two years' service.
• Self-employed people.
• Workers in some public sector jobs (like police officers or the armed forces).
• Crown servants and parliamentary staff.
• Employees of a foreign government.

Contact the Redundancy Payments Service (RPS)   

Redundancies should always be considered as a last resort after you have considered all other options. However, they are sometimes inevitable to keep your company afloat or as a response to financial struggles.

Employers can seek financial support if they're made insolvent by making a claim online or in writing to the Redundancy Payments Service (RPS). This governing body helps businesses fulfil any unpaid redundancy claims. Be aware, there is a limit to how much redundancy pay you get from the insolvency service.

Is redundancy the same as layoffs or short time working?

No, redundancy isn't the same as lay-offs or short-time work.   

A lay-off is used when an employee is given no work for a set time, like a full day. Short-time working is when an employee's work hours have decreased - but not completely stopped. Both are temporary measures, while redundancy is permanent.

Eligible employees may claim redundancy payment when they're temporarily laid off. This is when they have gone without pay or received less than half a week's pay for:

• At least for four weeks in a row.
• At least for six weeks (non-consecutive) during a 13-week period.

Get expert advice on redundancy pay with Croner

Croner are experts when it comes to employment law and redundancy. We have over 80 years of experience and are ready to step in to support you. You don’t need to deal with the redundancy process alone, call our HR consultants now on 01455 858 132.