How does redundancy work, and what am I entitled to?

The word gets used loosely for any dismissal an employer wants to feel neutral. Legally it is narrow: the business is closing, the workplace is closing, or the need for employees to do work of a particular kind has ceased or diminished. If the role is being filled by someone else afterwards, it is worth asking why.

Step by step

1. Check it is actually a redundancy.Closure of the business, closure of your workplace, or a reduced need for that kind of work. A dismissal dressed as redundancy where the job continues is a different thing, and may be an unfair dismissal.
2. Expect meaningful consultation before the decision.Individual consultation should happen before anyone is selected, with a genuine opportunity to comment. Where twenty or more roles at one establishment are proposed within 90 days, collective consultation with representatives is required, with minimum periods that increase above 100 roles.
3. Ask how the selection pool and criteria were set.The pool should be defined logically and the criteria should be objective and measurable — skills, performance records, disciplinary record. Criteria that are discriminatory, or that penalise part-time working, family leave or trade union membership, are unlawful.
4. Ask about suitable alternative employment.The employer should look for alternative roles across the business, including in associated companies. Unreasonably refusing a genuinely suitable offer can cost you the redundancy payment; there is normally a statutory trial period in a new role.
5. Work out statutory redundancy pay.It uses a formula based on completed years of service in age bands, capped both in the number of years counted and in the weekly pay figure used. GOV.UK has a calculator, and the weekly cap changes each April, so use the current one.
6. Add notice and holiday separately.These are not part of redundancy pay. Statutory or contractual notice, or pay in lieu, is due on top. So is pay for accrued untaken holiday. A settlement figure that looks generous sometimes turns out to be these three items added together.
7. Check any enhanced scheme in the contract.Contractual redundancy terms above the statutory minimum are common in larger employers and in the public sector, and they are enforceable.
8. Take the paid time off to look for work.Employees with two years' service who are under notice of redundancy have a statutory right to reasonable paid time off to look for work or arrange training.
9. Understand the tax treatment before agreeing anything.Genuine redundancy payments are tax-free up to a threshold; pay in lieu of notice and holiday pay are taxable in the normal way. A settlement agreement should set out how each element is treated.
10. Get advice before signing a settlement agreement.It waives claims, so it is only binding if you have taken independent advice, which the employer normally pays a contribution towards. That is not a formality — it is your chance to have the numbers checked.

Common mistakes

• Treating the redundancy payment as the whole package — Notice and accrued holiday are separate entitlements. Confusing them makes a poor offer look reasonable.
• Assuming consultation is a formality — Consultation before the decision is what makes a redundancy fair. A process where the outcome was announced first is challengeable.
• Missing the tribunal time limit — Claims generally have to start within three months less one day, with Acas early conciliation notified first. It is short, and it does not pause while you negotiate.

Questions people ask