UK Redundancy Rules - A Guide to Redundancy

UK Redundancy Rules Explained

UK Redundancy rules can be complex. Our guide below addresses the most common questions which often arise during a redundancy situation: -

1. What is a Redundancy?
2. Do I have the right to Statutory Redundancy Pay?
3. What is the relationship between Redundancy and Unfair Dismissal?
4. What are my employment rights when faced with Redundancy?
5. Redundancy and Settlement Agreements
6. How much Redundancy pay will I receive?
7. Do I need legal advice during a Redundancy?

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What is a Redundancy?

Section 139 of the Employment Rights Act 1996 (“the Act”) sets out the definition of Redundancy, however, in simple terms Redundancy is a form of dismissal. It is one of the five potentially fair reasons that an Employer may use to dismiss an Employee.

A person may find themselves facing a redundancy situation if their Employer is: -

1. Closing the business completely; or
2. Closing a part of the business/moving location: or
3. Reducing the number of job roles.

The right to Statutory Redundancy Pay Under UK Redundancy Rules

Section 155 of the Act states that an Employee does not have any right to receive a statutory redundancy payment unless that person has been employed continuously for 2 years.

Therefore, any person with less than two complete years of service, cannot claim statutory redundancy pay.

If you are facing redundancy and have less than 2 complete years of service, at the very least your employer should make a payment in lieu of notice (PILON) if you are not expected to work your notice period and payment for any accrued unused annual leave.

Occasionally an employer may recognise that an employee with less than two years of service does not have a right to claim statutory redundancy pay but may offer an ex-gratia payment which is paid tax-free as a gesture of goodwill.

Redundancy and Unfair Dismissal

As outlined above, UK Redundancy rules state that Redundancy is a form of dismissal.

Where an Employee with the requisite qualifying service (2 complete years) is dismissed, the dismissal will be unfair unless: -

1. The Employer can show that the dismissal was for a potentially fair reason, such as Redundancy; and
2. That in the circumstances the Employer acted reasonably i.e. follows a fair redundancy process/procedure

As a general rule, any employee with less than two complete years of service cannot claim statutory redundancy pay or unfair dismissal. There are some exceptions to this which are discussed below.

What is a fair redundancy process under the UK Redundancy Rules?

A fair redundancy process is essential to ensure that employees are treated lawfully and with respect. Employers must follow clear legal procedures when making redundancies, including:

• Genuine redundancy situation. The role must genuinely no longer be needed.
• Fair selection process. Employers must use objective criteria (like skills, experience, and qualifications) when selecting employees for redundancy.
• Consultation. Employers must consult with affected employees before final decisions are made, explaining the reasons for redundancy and exploring alternatives where possible.
• Consideration of alternatives. Employers should consider redeployment or alternative roles within the organisation.
• Proper notice. Employees must be given appropriate notice periods in line with their contract or statutory rights.
• Correct redundancy payments. Statutory or contractual redundancy pay must be calculated and paid correctly.

Under UK Redundancy rules, failure to follow the fair process could make a dismissal legally unfair, giving employees the right to challenge it. If you’re concerned about the way your redundancy has been handled, seeking legal advice early can make a real difference.
 

What are my employment rights under the UK Redundancy rules?

Although Redundancy is one of the five fair reasons that an Employer may use to dismiss an Employee, it will only be fair if the Employer: - 

1. Can satisfy the definition of redundancy by proving that there is a complete or partial business closure or by reducing the number of employees; and
2. Follows a fair redundancy process/procedure

Broadly speaking, an Employer will usually be able to satisfy the reason for redundancy. Cash flow problems tend to be the main reason for redundancy although other reasons can include technological advances reducing the need for the number of employees or if the company (or part of the company) is being taken over by another.

What an employer must not do is select an employee for redundancy due to any of the protected characteristics outlined in Section 4 Equality Act 2010 since that would amount to employment discrimination. The protected grounds are age, race, religion or belief, sex, sexual orientation, pregnancy and maternity, marriage and civil partnership, and disability.

Above, we explained that if an employee has less than 2 years’ complete service, generally a claim cannot be brought for unfair dismissal by reason of redundancy. However, if the principal reason an employee has been selected for redundancy is due to one of the protected characteristics, the dismissal would be automatically unfair and there may be ground to pursue a claim against the employer.

If your employer is making less than 20 redundancies, generally there is no defined consultation period. Ideally, your employer should still notify you of the risk of redundancy and consult with you.

If the number of proposed redundancies is 20 or more, the collective consultation rules apply. Before dismissing any employees by reason of redundancy, your employer must consult for a period of at least 30 days and if the number of redundancies is expected to be between 20 – 99 or a minimum of 45 days where the number of proposed redundancies is 100 or more.

Prior to making any redundancies, your employer will identify those individuals whose jobs are at risk. This is often referred to as the ‘selection pool’.

To identify which employee/s are going to be made redundant, the employer may use a scoring method based on objective criteria. This may include salary, performance, skills, and disciplinary record. Whilst some employers may opt to use attendance as a selection criterion, this must be exercised with caution since this may be discriminatory based on sex or disability.

Ideally, your employer should try to identify suitable alternative employment within the business as an alternative to redundancy. Factors to be taken into consideration will be pay, similarity in the role, and responsibilities.

Redundancy Pay Entitlements

If you are made redundant and have at least two years' continuous service with your employer, you will be entitled to statutory redundancy pay. This is the minimum amount that employers must offer. Although, some organisations provide enhanced packages.
Your redundancy pay entitlement is based on:

• Your age  
• Your length of service (subject to a cap)
• Your weekly gross pay (subject to a statutory cap)

Under the UK Redundancy rules, you may also be entitled to:

• Notice pay (or payment in lieu of notice)
• Payment for any outstanding holiday entitlement
• Bonuses, commission, or other contractual payments
   

If your employer offers enhanced redundancy pay, it will usually be detailed in your contract, company policies, or through a settlement agreement.

It's important to check that all elements of your pay package have been correctly calculated before you agree to anything.

How much redundancy pay will I receive?

Remember, you will only qualify for statutory redundancy pay if you have been employed for a continuous period of at least 2 years. 
Statutory redundancy pay is based on an employee’s age, length of service, and average weekly pay.

How is my redundancy pay calculated?

Your statutory redundancy pay is calculated based on:

• Your age at the time of redundancy
• Your length of continuous service

Your weekly gross wage, capped at a statutory limit (£719 per week as of April 2025). This can often cause confusion so please click here to use our redundancy calculator.  

The basic calculation is:

• 0.5 week’s pay for each full year you were under 22
• 1 week’s pay for each full year you were between 22 and 40
• 1.5 week’s pay for each full year you were aged 41 or older

Under UK Redundancy rules, the maximum number of years that can be counted is 20.

If you have a contractual redundancy package that offers more generous terms, these will usually be set out in your employment contract or company policy.

Remember that your redundancy pay is separate from your notice pay, any holiday pay owed, or other contractual payments you may be entitled to. If you're unsure whether your redundancy package has been calculated correctly, our employment law team can review the offer and advise you.

Redundancy and Settlement Agreements

Sometimes redundancy is inevitable. Occasionally in these situations, an employer will approach an employee on a without prejudice basis offering to terminate their employment contract subject to the terms of a settlement agreement (what used to be called a compromise agreement prior to July 2013).

At the very least, an employer should offer the following: -

1. A payment in lieu of notice (PILON) unless you are expected to work your notice period
2. A payment in lieu of all accrued unused holiday pay; and
3. Statutory redundancy pay

Ideally, we would like to see an incentivised offer, one which you deem reasonable to provide you with a financial cushion whilst you are now facing the difficult task of seeking new employment.

Next Steps if You’re Made Redundant

Being made redundant can feel overwhelming, but taking the right steps early on can protect your rights and help you move forward.

Ask for written confirmation of your redundancy, including your final working date and financial entitlements. Review your redundancy package carefully to make sure it includes statutory redundancy pay, notice pay, holiday pay, and any agreed enhancements.

Seek legal advice before signing any settlement agreement or redundancy paperwork. This ensures you understand your rights and options. It’s important that you check for alternative roles within the business, particularly if your employer is offering redeployment opportunities.

Once you’re satisfied that you’re making the right decision, update your CV and LinkedIn profile and begin exploring new opportunities if you’re ready. Consider financial planning to bridge any gaps between jobs, including benefits you might be entitled to claim.

We are here to help you navigate every step of the process, ensuring you are treated fairly and receive the compensation you deserve.

Worried about redundancy? 

If you're feeling anxious about redundancy, you’re not alone. Many employees understandably worry about financial security, career prospects, and the legal complexities involved.

The good news is you don’t have to face it alone.

Our experienced employment solicitors are here to provide clear, practical advice about your rights. We can also help you to understand your redundancy package and negotiate better terms where needed.

Whether you're worried about being selected unfairly, the amount you've been offered, or what steps to take next, we can help you feel more in control.

Do I need legal advice during redundancy?

Whilst we hope this guide does address the common key questions, we are happy to discuss these or any other queries you may have. Use our contact form and we will telephone you at our earliest convenience.