Calculating Redundancy Pay Correctly

The statutory formula

The statutory formula is best understood as: each complete year of service is assigned a weekly value, and the value of each year depends on the employee's age when that year was completed. The result is summed across all years of service, then capped.

The statutory formula is not a simple flat multiplication — it uses age bands per year of service. For practical purposes, the stages below walk you through each step correctly.

Step 1 — Establish gross weekly pay

Weekly pay is based on the employee's gross (pre-tax) weekly earnings at the date of termination. For salaried employees, this is annual salary divided by 52. For hourly or variable workers, use the average gross weekly pay over the preceding 12 weeks.

Include in weekly pay: Regular base salary, regular overtime (not occasional), commission (if consistent), contractual bonuses, shift allowances if part of regular earnings.

Exclude: One-off or irregular overtime, expenses, benefits in kind, tips, discretionary bonuses.

Step 2 — Apply the weekly cap

Your employee's weekly pay must be capped at the statutory maximum, even if their actual pay is higher:

• England, Scotland, Wales: Cap at £751/week
• Northern Ireland: Cap at £783/week

The cap applies to each year of the calculation — it does not reduce the number of weeks of entitlement, only the monetary value per week. Your employee may be entitled to fewer weeks if the capped total exceeds the overall maximum of £22,530 (UK) or £23,490 (NI).

Step 3 — Calculate years of service

Years of service is the number of complete years the employee has worked for you, from their start date to the effective date of termination. Partial years are rounded down — do not count a partial year as a full year.

The maximum number of years that can be counted is 20 years. Even if your employee has 30 years of service, only 20 years can be used in the statutory calculation.

Step 4 — Apply the age multiplier

Each complete year of service is weighted by a rate based on the employee's age at the time that year was completed. The statutory bands are:

• Under 22: 0.5 weeks per year of service
• 22 to 40: 1.0 week per year of service
• 41 and over: 1.5 weeks per year of service

Note: the statutory formula uses bands per year-of-service anniversary, not a flat multiplier applied to total years. An employee made redundant at 53 with 12 years' service will have some years at 0.5×, some at 1.0×, and some at 1.5× depending on when each year was completed. Use a proper calculation tool or speak to an employment lawyer to verify this.

Step 5 — Apply the overall ceiling

Even if the formula produces a figure above the statutory maximum, the total payment cannot exceed:

• £22,530 in England, Scotland, and Wales
• £23,490 in Northern Ireland

This represents 30 weeks at the maximum capped weekly rate (£751 × 30 = £22,530) in England, Scotland, and Wales.

Common mistakes to avoid

• Forgetting the weekly cap — always apply it, even for high earners
• Counting partial years — only complete years of service count
• Using net pay instead of gross — the calculation must use gross earnings
• Not checking NI rates for Northern Ireland employees — the cap is different
• Confusing notice pay with redundancy pay — they are separate and calculated differently
• Applying the wrong age multiplier — use the age at the date of termination, not the employee's current age in the formula