What are you entitled to when made redundant UK?

You'll normally be entitled to statutory redundancy pay if you're an employee and you've been working for your current employer for 2 years or more. You'll get: half a week's pay for each full year you were under 22. one week's pay for each full year you were 22 or older, but under 41.

Who pays redundancy when a business closes UK?

This process applies whether the liquidation was compulsory or voluntary, as the ultimate outcome is the same – the business closes down with the loss of all jobs. The National Insurance Fund (NIF) holds the monies used to make statutory payments, such as redundancy and the state pension.

What should I do with my redundancy money?

Making the most of your redundancy pay First, check all the money's yours. Use your lump sum as regular income. Keep up payments on essential extras. Clear your debts. Paying into your pension. Invest in other ways. Start your own business. Get some training.

Do companies have to pay severance UK?

As highlighted above, UK regulations do not force employers to pay a severance payment to dismissed employees unless stated in their employment contract . However, employers must pre-inform or notify the employees being laid off as per their severance agreement.

Wilko collapse: Redundancy pay UK and your rights (2024)

Wilko is closing its branches, after the chain fell into administration. Being made redundant can be a disconcerting time, so here we explain your rights.

UK high street retailer Wilko collapsed this summer after failing to keep up in a competitive bargain-store market. The GMB union said that all 400 Wilko stores would close by the autumnwith the likely loss of 12,500 jobs.

Redundancy pay, unlike regular income, is tax-free up to £30,000. However, if you receive holiday pay or pay in lieu of notice as part of your package, it will be taxed in the same way as your wages.

In this article, we cover:

What is redundancy and how is it calculated?
Is redundancy pay taxable?
How much redundancy pay should I get?
When should I receive my redundancy payout?
What are my redundancy rights?

Read more: Highest-paying jobs in the UK

What is redundancy?

Redundancy is when a person or group of people are dismissed from their job because a company needs to reduce their workforce.

It is often as a result of a cost-cutting programme, a restructuring or the business going bust. It is basically when the job you were doing no longer exists.

Are redundancy payments tax-free?

The first £30,000 of redundancy pay is tax-free.

Any amount above this will be subject to income tax. You do not pay national insurance on any of your redundancy pay, which will be paid to you as one lump sum.

Holiday pay, pay in lieu of notice (see below) and any other amounts that are paid for the work you do, rather than as compensation for the job loss, are taxed as pay.

What redundancy pay am I entitled to?

You are entitled to statutory redundancy pay if you have been in the same job for at least two years. How much you get will depend on:

Your age
Length of service
- only complete years count
- capped at 20 years
Your current salary
- up to a maximum amount

If you were made redundant on or after April 6, 2023:

Your weekly pay is capped at £643
Maximum statutory redundancy pay is £19,290

If you were made redundant before April 6, 2023:

Your weekly pay is capped at £571
Maximum statutory redundancy pay is £17,130

Use the government’s redundancy pay calculator to figure out how much you could be entitled to.

Note: employment contracts may state that an employee is entitled to more than the statutory figure, but never less.

Statutory redundancy pay, for each complete year of service

You have six months to apply for statutory redundancy pay from the day you lose your job.

Under age of 22: Half a week’s pay
Aged 22-40: A week’s pay
Aged over 41: A week and a half’s pay

For example: Peter is 42 and has been working as a delivery driver for the same company for 18 years and earns £500 a week. He started at the company in 2004 at the age of 24, and was made redundant in May 2022.

The legal minimum entitlement is £9,250.

His entitlement is 18.5 weeks:

Half a week’s pay for each full year he worked under 22 = £0
17 weeks’ pay for the 17 years he worked aged 22 to 40 = £8,500
One and a half weeks’ pay for the one year he has worked over 41 = £750

If you are owed holiday leave, your employer has to pay you for it or let you take it before you go.

To work out your statutory entitlement you can use a redundancy pay calculator on the gov.uk website.

When should I receive my redundancy payout?

You should receive your redundancy payments on or before your final payday.

Your employer should notify you exactly how you will get paid and when they will pay your redundancy money to you.

However, an alternative date can be agreed between both parties; this should be in writing.

Employment laws on redundancy

The rules on redundancy are strictly set out in UK employment law. An employer’s legal obligations include:

Fair selection process
- complying with the rights of employees
- following what is set out in their contract
Consultation with employee
Notice period
Redundancy pay
- depending on sufficient length of service
Offer of suitable alternative employment elsewhere in the company if possible
Time off to search for a new job

Before embarking on a redundancy process, a company has to ensure that all options have been explored and exhausted, including reducing staff:

Benefits
Hours
Pay

If you think you have been treated unfairly or your employer has not followed the law, you can make a claim for unfair dismissal or seek compensation for lack of consultation.

What consultation period am I entitled to?

Once an employer has identified where they believe job losses need to be made, they must fairly select who will be made redundant – for reasons such as:

Individual consultation

If fewer than 20 redundancies are being made at a company then individual consultations will take place.

You can appeal if you are unhappy or think the process has been unfair, either through:

The company’s internal appeals procedure
An employment tribunal

You are allowed to bring a union or employee representative with you, but this tends not to be extended to friends or relatives.

Collective consultation

If a company is planning to make 20 or more people redundant over a period of 90 days or less, it is legally bound to go through a stricter and more structured consultation process.

This must involve trade union or employee representatives where possible.

The consultation must cover what the company is doing and discussions around:

Avoid the redundancies
Reducing the numbers of redundancies
Mitigating the hardships caused by the dismissals.

Collection consultation only relates to a single employer not a group. If two companies within a group propose making 19 redundancies each, they do not have to consult collectively.

What notice period am I entitled to?

By law, your employer has to give you a set amount of time from the point of telling you about your redundancy to your last working day at the company.

This is called your redundancy notice period and the amount you get depends on your length of service:

One month – 2 years : One week
From two to 12 years: one week’s notice for each year’s service
12 years or more: Notice is capped at 12 weeks’ notice

These are statutory minimum notice periods – you may get more if your contract says so, but you can’t get less.

“Pay in lieu of notice” – you may be offered a lump sum if your employer doesn’t want or need you to work your notice period. This is taxed in the same way as your ordinary pay.

“Gardening leave” – this involves serving out your notice away from work. You will still be legally employed, receiving your normal salary and the benefits, while not actually doing any work.

Note: On gardening leave you still have to stick to your contract, so you won’t be able to start work with a new employer and could be called back if your current employer needs you.

Can I be made redundant for going on strike?

You have the right to take part in industrial action, however, your employer isn’t legally required to pay you during this period. They may also reduce your length of service by the number of days you were off.

This is important when working out your pension and things like statutory redundancy pay.

You cannot be dismissed for industrial action if:

It’s called as a result of a ballot
It’s about a trade dispute between workers and their employer (eg about working conditions)
The employer has been given a least seven days’ notice

If you’re dismissed within 12 weeks of the strike, you can take legal action via an employment tribunal.

After 12 weeks, you can be dismissed if you take industrial action and your employer has tried to settle the dispute.

There are some scenarios where you can be dismissed for taking part in industrial action, for example it’s in support of only employing union members. More on this here.

What if I don’t think my employer is following the rules?

If you think your employer isn’t paying you the right amount of redundancy pay – or any at all – there are steps to take. Hopefully the matter will be resolved at step one – an employment tribunal is the last resort:

Go to your employer and address the issue
Contact your trade union, if you are a member
Make a complaint via your employer’s grievance procedure
Contact the arbitration service Acas
Take your company to an employment tribunal

If your employer has gone bust, you’ll still get statutory redundancy pay, holiday pay and wages, but you’ll have to claim from the government.

Do I need to tell HMRC if I’m made redundant?

Despite the first £30,000 of redundancy pay being tax-free, you still need to tell HMRC about it.

You need to provider details on your tax return of all severance pay so that HMRC can check everything is in order. There is a special section on the tax return for this.

We explain more here about how to fill in a tax return.

What if I am made redundant while on sick leave, holiday or maternity leave?

You can still be made redundant if you are currently on:

Sick leave
Maternity leave
Annual leave

Your employer must still follow the correct redundancy process.

You must be consulted before a decision is made, which usually involves them waiting until you return to work.

What is voluntary redundancy?

It may be that your employer offers staff the opportunity to take voluntary redundancy rather than making compulsory job losses.

Think about the decision carefully before raising your hand:

You are likely to be offered higher redundancy pay than the statutory minimum, but make sure you ask your employer exactly what it is offering.
Do you have enough money in case your job search takes longer?
Have you research the current state of the jobs market for your industry?
Remember insurance policies for payment protection, redundancy and unemployment – which cover you if you lose your job – won’t pay out for voluntary redundancy.
Taking voluntary redundancy could impact on the benefits you are entitled to.

Can I appeal it if my redundancy wasn’t voluntary?

An employer is within its rights to let you go, but they have to comply with the law. An employer must have:

A good reason for making the redundancy
Explored all the alternative options
Followed the processes outlined in this guide

You are able to challenge your redundancy – either the decision or the process – if you:

Have worked for at least two years for your employer and don’t believe the redundancy is genuine
Your employer hasn’t followed its legal obligations with regards to the collective consultation
Don’t believe a fair selection process has been followed
Think there was an “automatically unfair” reason for your redundancy
Believe you have been discriminated against.

Regardless of how long you have worked for a company, you must not have been discriminated against – for example, on grounds of age; race; gender; sexual orientation; disability; religion or belief; your working pattern; or maternity or paternity leave.

What to do if you plan to challenge the decision?

If you want to appeal, do it as soon as you can because there is a time limit for legal action.

Early conciliation is the first step:

Must begin within three months less a day from when you were made redundant
Can start while still waiting for your appeal via your company if you think you may run out of time
Get in contact with Acas as soon as possible, by filling out an early conciliation form

Acas provides a free, impartial service to help reach an agreement between you and your employer, without needing to go to an employment tribunal. If you still want to take this route, you need to have notified Acas first anyway.

What will an employment tribunal consider?

They will consider whether:

Redundancies were necessary
Your employer followed a fair selection and consultation process, both for the workforce and you individually
Your employer made reasonable efforts to find you alternative employment

You will need to show evidence against your employer, so keep accurate records throughout the redundancy process.

A tribunal should be viewed as a last resort. It can be time consuming, expensive and enormously stressful, and you may not win. Get lots of advice first.

It may be that your employer hasn’t followed a fair process but instead asks that you sign a “compromise agreement”. This states that you won’t take it to an employment tribunal and is usually in exchange for a payment.

Your employer must first pay for you to receive independent legal advice, so you are fully aware of the rights that you are giving up by signing the agreement.

12 ways to make the most of your redundancy pay

Being made redundant is never a nice experience. However, redundancy pay can soften the blow and even provide a springboard.

You could make a dent in your mortgage, start a business or even head off on the trip of a lifetime.

1. Clear your debts

It is always advisable to pay down your debts first. Not only will it be cheaper in the long run but it will be an opportunity to wipe your financial slate clean.

The interest you pay on a credit cards will probably be a lot higher than what you could make by putting your money in a savings account.

Read our guide to a financial detox to learn more about tackling debt.

2. Save it

If you have little in the way of savings, now is the time to change that.

Today’s pitiful interest rates may make saving seem rather pointless, but we all need some money tucked away in case something unexpected happen.

Aim to have three months’ worth of your typical salary in an easy access savings account. If you’ve got this in place already, you could choose to add a bit extra on top.

Make sure you regularly check the interest rate and move your money to another bank if you can get a higher rate. Or you could buy some Premium Bonds.

3. Use it for a property deposit

A redundancy payout could come in very handy further down the line if you want to buy your first home, or are trying to save up to move to a bigger home.

If you want to move in the next few years, find a savings account or cash ISA to store the money safely until you need it.

If you are saving up to buy your first home (and are aged under 40), you could open a lifetime ISA. These accounts come with 25% tax-free cash from the government.

Find out more: I’ve been furloughed. What are my rights if I’m made redundant?

4. Invest it

If you won’t need your money for at least five years, investing it could be the best way to make that money grow. This is because stock markets have consistently delivered higher returns than savings accounts.

You need to consider what your financial goals are, how long you are willing to tie your money up for and your risk appetite.

Remember that the greater the return you are after, the more risk you will have to take – and investments can go down in value as well as up.

Find out more: How to invest £50,000

5. Overpay your mortgage

You could shorten your mortgage term by using your redundancy money to pay off your home loan.

If you are thinking of using a lump sum to make a dent in your mortgage repayments, check to make sure your lender won’t charge you for overpaying.

Find out more: Guide to paying off your mortgage early

6. Put it in a pension

Choosing to pay a lump sum into your pension pot will give you more money in retirement.

It is also a tax-efficient option now, especially if you are receiving a redundancy payout of over £30,000 – the maximum you can receive before tax is owing.

Even if the sum is under the £30,000 limit, there is nothing to stop you putting some of this into a pension.

Just be mindful of the £60,000 annual limit for most people’s pension contributions – if you pay in more than this, the excess will not receive any tax relief from the government.

7. Save for your children’s future

There are a number of ways you can give your kids a financial leg-up, from opening a junior Isa (JISA) to setting up a pension for them.

Investing even a small amount regularly when your child is young will mean the money has plenty of time to grow into something substantial by the time they need it.

If you opt for a child’s pension or JISA, your contributions, investment growth and tax relief from the government.

Find out more: Best junior stocks and shares ISAs

8. Take time out

You could use the money for income to give yourself a proper break, rather than rushing back into the jobs market.

To ensure you have a proper budget for the payout and don’t blow it all at the start, put it into a separate account. You could set up a standing order to pay a set amount into your current account each month.

9. Start a business

Around 600,000 new companies are registered in the UK every year. Putting your payout towards joining those ranks would be incredibly exciting – and stressful.

Just make sure you read our guide to setting up a business to give you the best chance of survival.

10. Take a course

Whether you want to study with the aim of boosting your current career, or move in a totally different direction – or you simply want to study for the love of learning – now could be the perfect time.

Research by investment platform eToro revealed that 31% of Britons embraced time at home during the first coronavirus lockdown as a chance to improve themselves with new skills, training and qualifications.

11. Spend it

I don’t mean go on a massive shopping splurge, but if you need a new car for work or a better laptop that could help you in your next job, now is the time to invest in yourself.

Or if you need an extension to house a growing family, or your bathroom is crying out for a refit, consider using some of the money for that purpose. Read more about the best ways to add value to your home here.

12. Go on a trip of a lifetime

While all of the above are great things to do, life is also for living. I used part of my redundancy payout to travel to the Galapagos Islands – number one on my bucket list.

It really was the trip of a lifetime and the memories will stay with me for life. While now may not be the best time to travel, that doesn’t stop you flicking through the Times Travel section for ideas and building up your trip.

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