Redundancy Who Pays – Understanding Your Rights and Payment Responsibilities

When facing redundancy, one of the most pressing questions employees ask is: who pays redundancy compensation? The answer depends on several factors, including your employer’s financial situation, your length of service, and whether your company remains solvent. Understanding redundancy who pays responsibilities can help you navigate this challenging period with confidence and ensure you receive the payments you’re entitled to.

A genuine redundancy situation arises when a job role no longer exists due to business needs, such as business restructuring, closure, or reduced need for certain positions. In these circumstances, redundancy rights are triggered, providing employees with specific legal protections and entitlements. Redundancy does not occur because of performance issues or misconduct. This distinction matters because it triggers specific legal rights, including redundancy pay in many cases. Whether you’re an employee concerned about upcoming redundancies or an employer managing workforce changes, knowing who bears the financial responsibility for these payments is crucial.

This comprehensive guide will walk you through the payment framework, from statutory requirements to government safety nets, helping you understand exactly who pays redundancy compensation in different scenarios.

Introduction to Redundancy

Redundancy is a type of dismissal that occurs when an employer needs to reduce the size of their workforce due to changes in the business, such as restructuring, closure, or a reduced need for certain job roles. For affected employees, redundancy can be a difficult and uncertain time, but it’s important to know your rights and what to expect from the process. In the UK, if you have been continuously employed by your employer for at least two years, you are entitled to statutory redundancy pay. This payment is calculated based on your length of service, your age, and your weekly pay at the time of redundancy. If you’re going through redundancy, you may receive a redundancy letter, which outlines the details of your dismissal and pay.

Employers are required by employment law to follow a fair process when making redundancies. This includes consulting with all affected employees, using clear selection criteria, and considering suitable alternative employment within the organisation before final decisions are made. If you are selected for redundancy, your employer must provide you with information about your redundancy pay entitlement and any other payments you may be owed. Understanding the statutory redundancy process and your rights as an employee can help you navigate redundancy with greater confidence and ensure you receive the pay and support you are entitled to.

Who is Responsible for Paying Redundancy

The primary responsibility for paying redundancy lies squarely with employers. When a company makes employees redundant, the employer pays statutory redundancy pay to all eligible workers from their own funds. This obligation exists regardless of whether the redundancy was planned or sudden, and applies to both small businesses and large corporations.

However, the reality of redundancy who pays becomes more complex when employers face financial difficulties. The government’s Redundancy Payments Service (RPS) serves as a crucial safety net, stepping in when employers become insolvent and cannot meet their obligations. If your employer’s business has closed down and you can’t get in touch with them, you should check if your employer is insolvent. Verifying the status of the employer’s business—such as whether it is a limited company, sole trader, or partnership—can help determine if you are eligible to claim money owed to you, including redundancy pay, holiday pay, or notice pay. If the employer owes redundancy pay and is insolvent, employees can claim money through the RPS. This dual-layer system ensures that employees don’t lose their entitlements simply because their former employer runs into financial trouble.

Payment responsibility depends entirely on the employer’s financial status and trading situation at the time of redundancy. A solvent company trading normally must pay all redundancy costs from company funds, while an insolvent business triggers government intervention through the RPS system.

It’s important to note that directors and company shareholders are not personally liable for redundancy payments in limited companies. The liability remains with the company entity itself, which means personal assets of business owners are typically protected from redundancy payment claims.

Statutory Redundancy Pay Requirements

To qualify for statutory redundancy pay, you must have worked for your employer for at least two years of continuous employment. This means you need a minimum of two years service without a break; any interruption in employment can reset your eligibility. Only complete years service count towards your entitlement. The minimum statutory redundancy payment is set by law, and for redundancy claims in 2026, the cap on weekly pay is £719 and the maximum payment is £21,570. You can only receive statutory redundancy pay for up to 20 years of service. The weekly pay used for calculations is based on your gross pay (earnings before tax) and is calculated using your average week’s pay over the 12 weeks before your redundancy notice. Other statutory employment benefits, such as statutory sick pay (SSP), have their own eligibility criteria and payment rules.

The maximum statutory redundancy payment currently stands at £21,570 for someone with 20 years of service. This calculation uses a formula based on your age, length of service, and weekly pay, creating a structured approach to determining entitlements.

Payment rates vary significantly by age group, reflecting government policy to provide enhanced protection for older workers who may face greater challenges finding new employment:

• Under 22 years old: half a week’s pay for each full year of service
• 22 to 40 years old: one week’s pay for each full year of service
• 41 years and older: 1.5 weeks’ pay for each full year of service

For details on how to calculate pro-rata annual leave allowance, especially if an employee joins or leaves partway through the year, see this comprehensive guide.

A significant financial benefit is that up to £30,000 of redundancy pay is tax-free, making these payments more valuable than equivalent salary increases. This tax treatment applies to genuine redundancy payments, though other termination payments like pay in lieu of notice remain subject to normal income tax and National Insurance contributions.

The redundancy pay depends on these statutory calculations, but many employers offer enhanced redundancy pay through contractual agreements or company policies that exceed the minimum requirements.

Calculating Redundancy Pay

Understanding how redundancy pay is calculated is crucial for anyone facing redundancy. Statutory redundancy pay is determined by a formula that takes into account your age, length of service with your employer, and your weekly pay. Here’s how the calculation works:

• Half a week’s pay for each full year of service while you were under 22 years old
• One week’s pay for each full year of service while you were aged 22 to 40
• One and a half weeks’ pay for each full year of service while you were 41 or older

The maximum weekly pay that can be used to calculate statutory redundancy pay is currently £719, and the maximum total statutory redundancy payment is £21,570. Only complete years of service count towards your redundancy pay calculation. If you want to know exactly how much statutory redundancy pay you are entitled to, you can use the government’s online redundancy pay calculator for an accurate estimate based on your personal circumstances.

Contractual Redundancy Pay

While statutory redundancy pay sets the minimum legal entitlement, some employers offer more generous terms through contractual redundancy pay. This type of redundancy pay is agreed upon in your employment contract and may provide higher payments or additional benefits beyond the statutory minimum. Contractual redundancy pay can be part of a company policy, a collective agreement, or negotiated as part of a settlement agreement when your employment ends.

It’s important to review your employment contract and any relevant company policies to understand if you are eligible for contractual redundancy pay and how it is calculated. If your contract includes enhanced redundancy terms, your employer is legally required to honour these commitments in addition to the statutory redundancy pay. Always check the details of your employment contract so you know exactly what redundancy pay you should receive.

When Employers Can Pay Redundancy

Solvent companies must pay redundancy from their own funds, typically making payment on the employment termination date or an agreed alternative date set out in writing. The employer offers this payment as part of the final settlement, often combining it with notice pay, payment for accrued but unused holiday entitlement, and other money owed by the employer.

Employers must provide a written calculation showing exactly how much redundancy pay was determined, breaking down the age-related multipliers, years of service, and weekly pay used in the calculation. If an employee believes the calculation is incorrect, they may need to provide evidence—such as employment contracts or correspondence—to support their claim and request a review. This transparency helps prevent disputes and allows employees to verify the accuracy of their payments.

Many employers provide enhanced or contractual redundancy pay that exceeds statutory minimums. These enhanced schemes may offer more generous multipliers, higher weekly pay caps, or additional benefits like career transition support. When an employer offers enhanced terms, they become contractually bound to honor these commitments.

The timing of payment is crucial for cash flow planning. While the standard expectation is payment with the final paycheck, employers facing temporary cash flow issues can negotiate alternative payment schedules in writing. Redundancy pay and other money owed, such as notice pay or holiday pay, may be made as separate payments, each accompanied by its own documentation. However, unreasonable delays expose employers to legal claims and potential tribunal action.

Some employers struggling with redundancy costs may explore government support options, particularly if the redundancies are part of a broader business rescue plan. Companies in Company Voluntary Arrangements (CVA) can sometimes access government assistance, though this support is limited and subject to strict eligibility criteria.

When Government Pays Redundancy

The Redundancy Payments Service takes over payment responsibilities when employers are formally insolvent. Insolvency includes various legal procedures: administration, liquidation, bankruptcy, and receivership. Each of these triggers the government safety net, ensuring employees don’t lose their statutory entitlements.

If your employer is insolvent and a receiver or liquidator has been appointed, you should claim your redundancy payment from the National Insurance Fund. To make a redundancy pay claim, you must complete an online application through the RPS portal. There is a strict time period for submitting your claim: you must apply within six months from your employment end date. This deadline is strictly enforced, so prompt action is essential. Claims require a CN number provided by the insolvency practitioner handling the company’s affairs, creating a formal link between the insolvency process and employee claims.

The redundancy payment service operates through an online portal where employees can submit their claims and track progress. The service typically processes payments within six weeks of receiving complete claim information, though complex cases may take longer. Claims for statutory notice period pay may also be made through the RPS if you did not receive payment in lieu of notice from your employer.

Importantly, the RPS only covers statutory redundancy pay, not enhanced contractual payments. If your employment contract promised redundancy pay above the statutory minimum, you’ll need to claim the enhanced portion as an unsecured creditor in the insolvency proceedings. This distinction often means employees receive less than they might have expected from enhanced schemes.

Financial Support for Struggling Businesses

Companies in Company Voluntary Arrangements (CVA) can apply for government loans to help fund redundancy costs, though this support is limited to businesses with realistic prospects of survival. Businesses in administration may also access RPS assistance for redundancy costs as part of a rescue plan.

Employers must prove their inability to pay redundancy costs and demonstrate that the redundancies will improve business survival prospects. This support is not available for companies already in formal liquidation, where the focus shifts entirely to the RPS system for employee protection.

The government recognizes that redundancy costs can push struggling businesses into insolvency, so these support mechanisms aim to preserve jobs where possible while ensuring fair treatment for employees who do lose their positions.

Employee Rights When Employers Cannot Pay

When an employer fails to pay redundancy, employees should first contact their former employer directly to request the unpaid redundancy pay. This initial step often resolves simple administrative delays or misunderstandings about payment timing.

If the employer doesn’t respond or refuses to pay, employees must contact Acas for early conciliation before filing a tribunal claim. Acas early conciliation provides free mediation to help resolve the dispute, and employees should contact Acas for support if they do not receive their redundancy pay after following the proper procedures. Acas conciliation is often faster and less stressful than formal legal proceedings, and many disputes are resolved at this stage.

If you do not receive your redundancy pay, you can make a redundancy claim or an employment tribunal claim within six months of your dismissal. Employment tribunal claims for redundancy compensation must be made within six months of dismissal, and you will need to provide details of the respondent(s), such as your employer and, in some cases, the Secretary of State. Pursuing a tribunal claim may involve legal costs, so it is important to consider this before proceeding. Employers have a legal duty to follow fair redundancy procedures, including making reasonable efforts to offer suitable alternative roles and communicating these options fairly in accordance with employment law. Employees should also be given the right to appeal against their redundancy dismissal as a matter of good practice, even though there is no statutory obligation for employers to offer this right.

Before proceeding with a tribunal claim, employees should check if their employer is insolvent using the GOV.UK company register, as insolvency changes the appropriate route for claiming payments.

If the employer is confirmed insolvent, employees should claim through the RPS rather than pursuing tribunal action against a company that cannot pay. The RPS system is specifically designed for these situations and offers a more reliable route to payment than attempting to enforce tribunal awards against insolvent businesses.

Employees who worked for companies that have ceased trading should also check whether the business has entered any formal insolvency procedure. Sometimes companies simply stop trading without formal insolvency, which can complicate the claims process and may require legal advice to determine the best approach.

Additional Payments Through Government Schemes

Beyond redundancy pay, the RPS can help recover other employment-related debts when employers become insolvent. Unpaid holiday pay, statutory notice pay, and other money owed (such as arrears of pay or commission) can be claimed alongside redundancy pay, up to the statutory limits that apply to payments from the National Insurance Fund. These payments are subject to statutory caps and may be taxed at the basic rate of 20%.

Outstanding statutory notice pay may also be recoverable through the RPS, though this is subject to statutory caps on weekly pay and maximum periods. The notice period entitlement depends on your length of service, typically one week per year of service up to a maximum of 12 weeks. To claim notice pay, you must file a secondary claim using a specific ‘LN’ number after your statutory notice period ends.

State benefits received during your notice period may reduce the final redundancy payment amount, as the government seeks to avoid double payments for the same period. This coordination between different government systems can be complex, and the RPS will explain any adjustments made to your claim.

Payments from the National Insurance Fund typically take up to six weeks to process once the RPS receives complete claim information. The service prioritizes claims based on hardship, so employees facing particular financial difficulty may receive faster processing.

Some employees may also be entitled to claim unpaid wages for work completed before their employment ended. These claims, as well as claims for other money owed, are subject to the same insolvency procedures and time limits as redundancy pay claims.

Redundancy Payments and Tax

When you receive a redundancy payment, it’s important to understand how it is treated for tax purposes. The first £30,000 of a genuine redundancy payment is tax free, meaning you won’t pay income tax on this portion. If your redundancy payment exceeds £30,000, any amount above this threshold will be taxed at your normal income tax rate. Employers are responsible for deducting the correct amount of tax and national insurance contributions from any taxable portion of your redundancy payment. In some cases, you may need to complete a tax return to report your redundancy payment, especially if you receive other payments at the same time. Knowing the tax rules can help you plan your finances and avoid unexpected tax bills.

Redundancy and Holiday Pay

If you are made redundant, you are entitled to be paid for any holiday leave you have accrued but not taken by the time your employment ends. This holiday pay is calculated based on your normal pay rate and the number of days’ holiday you have built up. If you have taken more holiday than you have accrued, your employer may deduct the overpayment from your final pay. Employees can also claim for any holiday pay that has not yet been paid for leave already taken. Understanding your entitlement to holiday pay when made redundant ensures you receive all the payments you are owed. If you believe your holiday pay has not been correctly calculated or paid, you have the right to make a claim to recover the money.

What Happens If Payment is Disputed

The RPS explains reasons for non-payment or reduced amounts when claims don’t meet the statutory criteria. Common reasons include insufficient service length, disputes over employment dates, or lack of supporting documentation from the insolvent employer’s records.

Employer records may not support employee claims in some cases, particularly where companies kept poor records or where employment arrangements were informal. The RPS relies heavily on official company records, so any discrepancies between employee expectations and company documentation can lead to reduced payments.

Employment tribunals can resolve disputes over entitlement to redundancy pay, but employees should seek professional legal advice before starting tribunal proceedings. Tribunals will consider all the circumstances, including whether the employee was unfairly selected for redundancy, if proper consultation with an employee representative took place, and whether the employer followed the correct redundancy process. Employees may be entitled to compensatory awards or a basic award if the redundancy is found to be unfair. Special protections apply to employees on maternity leave, and redundancy linked to discrimination (such as pregnancy) may be grounds for a claim.

Employers must consult with employees at risk of redundancy and consider suitable alternative roles, including offering a new job or the same role where possible. If an employee refuses a suitable alternative role without good reason, their redundancy entitlement may be affected and they could lose their right to redundancy pay. The maximum penalty for failing to follow collective redundancy consultation rules will double from 90 to 180 days’ pay starting April 2026.

Different deadlines apply for redundancy pay claims versus unfair dismissal claims, creating potential confusion about which route to pursue. Redundancy pay claims generally have longer time limits, but the specific deadlines depend on whether the employer is solvent or insolvent.

The key to avoiding disputes is maintaining good employment records and understanding your entitlements before redundancy occurs. Employees who keep records of their start date, continuous service, and any enhanced redundancy terms in their contracts are better positioned to claim their full entitlements.

Understanding redundancy who pays responsibilities helps both employers and employees navigate these challenging situations with clarity. Whether payments come from company funds or government safety nets, knowing your rights and the available support systems ensures you can access the compensation you’re entitled to receive. If you’re facing redundancy or managing redundancy processes, consider seeking professional advice to ensure all obligations and entitlements are properly addressed.