How to handle redundancy in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Redundancy is a specific legal process in the UK, not a general term for dismissal. Done correctly, it protects both the business and the employee; done wrong, it exposes you to unfair dismissal claims and tribunal costs.
Understand what redundancy actually means
Redundancy has a precise legal definition. It arises when a role — not a person — is no longer required. The three accepted reasons are: the business is closing entirely, a particular workplace is closing, or the need for employees to do a particular kind of work has reduced or ceased.
This distinction matters. If you select someone for redundancy because of their performance or behaviour, that is not redundancy — it is a different dismissal route, and conflating the two is a common and costly mistake.
Check who qualifies for statutory redundancy pay
Employees with at least two years' continuous service are entitled to statutory redundancy pay. The amount depends on age, length of service and weekly pay (subject to a statutory weekly pay cap — check the current government figure, as it is reviewed annually).
The formula is:
- Half a week's pay for each full year of service under age 22
- One week's pay for each full year between 22 and 40
- One and a half weeks' pay for each full year aged 41 or over
Service is capped at 20 years. You can offer enhanced redundancy pay above the statutory minimum, but you cannot pay less. Employees with under two years' service have no statutory entitlement to redundancy pay, though other rights — including notice and the right not to be discriminated against — still apply.
Follow a fair procedure
An unfair procedure can make an otherwise legitimate redundancy legally unfair, regardless of the business reason behind it. The core steps are:
Give advance warning. As soon as you know redundancies are likely, you should begin a genuine consultation process — not a tick-box exercise where the decision is already final.
Consult collectively if needed. If you are making 20 or more redundancies at one establishment within 90 days, collective consultation rules apply. You must notify the Redundancy Payments Service (RPS) and consult with elected employee representatives or a recognised trade union. Minimum consultation periods are 30 days for 20–99 redundancies and 45 days for 100 or more.
Consult individually. Even outside collective consultation, every affected employee should have meaningful individual meetings where they can ask questions, raise concerns and suggest alternatives.
Use objective selection criteria. If you are selecting from a pool of employees, the criteria must be fair, consistent and capable of being evidenced — for example, skills, performance records or attendance. Avoid criteria that could be discriminatory, such as those that disproportionately affect employees on family leave or part-time workers.
Consider alternatives. Before confirming redundancy, genuinely explore whether there are suitable alternative roles. If you offer a suitable alternative and the employee unreasonably refuses it, they may lose their statutory redundancy pay entitlement. The employee has a statutory four-week trial period to assess any new role.
Provide the right notice. Statutory minimum notice is one week per year of service, up to a maximum of 12 weeks (after 12 years). Many contracts provide longer contractual notice — use whichever is greater.
Get the tax and payroll treatment right
Statutory redundancy pay is free of income tax and National Insurance up to £30,000. Amounts above that threshold are subject to income tax in the normal way. Employer National Insurance at 13.8% applies to the excess above £30,000 as well.
Payments in lieu of notice (PILON) are taxable as earnings in full, whether or not they are contractual. The same applies to any enhanced redundancy payments that form part of the employee's contractual entitlement — these do not benefit from the £30,000 exemption.
Under Real Time Information (RTI) rules, you report the final pay and any taxable elements through your Full Payment Submission (FPS) on or before the employee's final payday. Issue the P45 promptly once the employment ends.
Know the day-one rights landscape
The Employment Rights Act 2025 has strengthened employee protections, including around unfair dismissal. While the qualifying period for unfair dismissal claims is subject to ongoing implementation timelines, the direction of travel is clear: employee rights apply earlier in the employment relationship than before. This makes following a fair procedure important even for relatively short-tenure staff.
Employees who believe they were selected for discriminatory reasons — for example, because they are pregnant, on maternity leave or have raised a protected disclosure — can bring tribunal claims regardless of length of service. There is no qualifying period for discrimination or whistleblowing claims.
If you are unsure about any step, take independent legal advice before you act, not after. Redundancy done properly is a legitimate business tool; the process is what determines whether it stays that way.
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