What are the essential redundancy rights UK employers need to know?

Handling redundancies is a tough challenge for any growing organisation. The process is fraught with legal complexities and human emotions. For HR managers, finance leaders and business owners, a misstep can lead to costly employment claims, damage morale, and harm your brand image.

Understanding UK redundancy rights is essential in order to ensure compliance. This guide outlines your obligations as an employer, the rights of your staff, the right process to follow, how to calculate pay compliantly, and common pitfalls.

What legally defines redundancy?

Before starting any redundancy process, you must be sure you have a genuine redundancy situation. Redundancy is not a tool to manage poor performance.

The legal definition is precise. Section 139 of the Employment Rights Act 1996 says a redundancy occurs when a worker’s dismissal is “wholly or mainly attributable” to one of three situations:

1. A business closure, i.e. when the organisation ceases to operate entirely.

2. A workplace closure, e.g. the closure of a branch or specific workplace location.

3. A reduced need for work, e.g. the requirements of the business for people to carry out work of a particular kind have ceased or diminished.

This last point is the most common, and also the most contested, since you must prove the job role itself is no longer needed. For example, if new software automates a task, the need for specific manual work may be diminished.

What is the correct process for making redundancies?

A fair process is your best defence against a tribunal claim. Even if the redundancy is genuine, a flawed process can make the dismissal unfair.

Why is consultation so important in the redundancy process?

Redundancy consultation is a mandatory, two-way conversation, not just a one-way announcement. You must genuinely consult with staff at risk, listen to their suggestions, and try to avoid job losses.

You must inform the staff in question about:

• The reasons for the proposed redundancies.

• The number and types of roles at risk.

• The proposed method for selecting people.

• How redundancy pay will be calculated.

• The timeline for the process.

In particular, the rules change according to the number of staff at risk. For 20 or more job reductions at one establishment in a period of 90 days, you will have to launch a collective consultation. This will involve a trade union or elected staff representative, and will have a minimum consultation period of 30 days for 20-99 staff, or 45 days for 100+ staff.

How can employees be selected for redundancy fairly?

It’s essential to use a fair and objective selection process, and not one based on personal preferences or opinions. The selection criteria must be objectively measurable and non-discriminatory in nature.

Common criteria include:

• Skills, qualifications, and experience (in relation to remaining roles).

• Performance records (based on objective appraisals).

• Disciplinary records.

• Attendance records (discounting any leave related to disabilities, or maternity).

Remember that you must not use discriminatory criteria based on aspects such as age, gender, part-time working status, etc. Finally, it’s essential to document every decision and to gather the data used to make it.

Is identifying alternative employment an obligation?

As an employer, you are obliged to look for and offer suitable other roles within your business. A worker who then unreasonably refuses a suitable job offer may lose their right to statutory redundancy pay (SRP).

If the new role differs significantly from the old one, the individual will be entitled to a statutory four-week trial period. This lets both parties check whether the role is actually suitable, without the person losing their redundancy entitlement if it doesn’t work out.

How do you calculate statutory redundancy pay?

Staff with two or more years of continuous work have an entitlement to Statutory Redundancy Pay (SRP). This is the legal minimum. This means that your company can offer a more generous contractual arrangement, but no less than the minimum.

SRP is calculated on the basis of three factors:

1. The individual’s age.

2. Their years of continuous work (up to a maximum of 20).

3. Their average gross weekly pay (capped at £719 for the 2025/26 tax year).

The formula is then as follows:

• 1.5 weeks’ pay for each full year of service over 41 years old.

• 1 week’s pay for each full year of service between 22 and 41.

• 0.5 week's pay for each full year of service under 22.

The weekly pay is capped by the government and changes annually. You can find the current rate on the gov.uk website for calculating your employee’s statutory redundancy pay. This will be a crucial number for your finance team.

UK statutory employment rights guide

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What other financial obligations does an employer have?

Redundancy pay is only one part of the final money settlement. You must also account for holiday pay, tax, and the leaving period.

What notice must be given for redundancy?

In the case of redundancy, a person is entitled to their full notice period, according to their statutory right, and their employment contract.

• Statutory period: The legal minimum is one week’s notice for each year of service, up to a maximum of 12 weeks.

• Contractual period: If their contract says they will get a longer notice period, you must honour that.

You can either have the person work the full period, or you can offer them Payment In Lieu of Notice (PILON), provided their contract allows for it, as per the rules on Post-Employment Notice Pay (PENP).

How is redundancy pay taxed?

This is critical for payroll. The first £30,000 of a redundancy payment (statutory and contractual) is usually tax-free.

However, other payments made at the same time are taxable as normal income. This includes:

• Payment in Lieu of Notice (PILON).

• Any unused holiday pay.

• Any normal salary or bonus due up until the termination date.

A good payroll system will differentiate these payments in order to apply tax and National Insurance deductions correctly.

What are the legal risks if the process isn’t right?

Cutting corners on redundancy rights is a false economy. A dissatisfied individual can make a claim to an employment tribunal.

The two most common claims are:

1. Unfair dismissal: If you lacked a genuine redundancy reason or used a flawed, subjective or discriminatory process, a tribunal could rule the dismissal was unfair.

2. Protective award: If you fail to consult collectively (for 20+ redundancies), a tribunal can order you to pay a ‘protective award’ to all of the affected staff. This can be up to 90 days’ full pay per person.

The financial and reputational cost to your business can therefore be immense. And so it’s important to always seek expert advice.

Are there special considerations for certain employees?

Yes. The law provides extra protection for certain groups.

Staff on maternity, adoption or shared parental leave have special redundancy rights. If their role becomes redundant, they have the entitlement to be offered any suitable alternative vacancy first, before anyone else.

You must also ensure your selection criteria do not unfairly disadvantage part-time workers, or those on fixed-term contracts.

How can technology streamline the redundancy process?

Managing redundancies involves a significant amount of data, calculations, and documentation. This administrative burden can pull focus from core operations.

Modern payroll and HR software such as PayFit’s can help. A good system will:

• Calculate SRP: Automatically calculate the correct statutory pay using service years, age, and capped weekly earnings.

• Manage timelines: Track key dates for consultation periods, notification, and termination.

• Process final pay: Accurately handle the complex final payslip, separating tax-free redundancy money from taxable elements.

• Store documents: Keep a secure, auditable trail, which will be vital if you face any legal claim.

Using technology like PayFit’s automated payroll software reduces the risk of human error, ensures compliance, and frees up your team to handle the more sensitive, human side of the process.

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