Statutory vs Contractual Redundancy Pay

When you are made redundant in the UK, the amount you receive depends on whether your employer offers only the statutory minimum or a more generous contractual package. Understanding the difference is important because the gap between the two can be substantial. This guide explains what each type of redundancy pay involves, how they compare, and what you should check in your own employment contract.

What is statutory redundancy pay?

Statutory redundancy pay is the legal minimum that every qualifying employee in the UK is entitled to when they are made redundant. It is set by the government and calculated using a fixed formula that takes into account three factors:

• Your age during each year of employment (determining the multiplier)
• Your length of continuous service (capped at 20 years)
• Your weekly gross pay (capped at £719 for 2025/26, or £749 in Northern Ireland)

The formula applies these multipliers to each year of service:

• Under 22: 0.5 weeks' pay per year
• 22 to 40: 1 week's pay per year
• 41 and over: 1.5 weeks' pay per year

The current maximum statutory redundancy payment is £21,570. To qualify, you must be an employee with at least 2 years' continuous service. Employers are legally obligated to pay this amount — there is no discretion involved. If an employer refuses, the employee can bring a claim to an employment tribunal.

For a full breakdown of the formula, see our step-by-step calculation guide.

What is contractual (enhanced) redundancy pay?

Contractual redundancy pay is any amount above the statutory minimum that your employer has committed to pay. This commitment may be found in your:

• Written employment contract
• Staff handbook or company redundancy policy
• Collective agreement negotiated by a trade union
• A separate redundancy agreement offered at the time of dismissal

Where an enhanced redundancy scheme is written into your contract or forms part of your contractual terms, your employer is legally bound to honour it. However, if the enhanced payment is described as "discretionary" or "ex gratia," your employer may have more flexibility to change or withdraw it.

Enhanced redundancy packages vary enormously between employers. Some simply increase the multipliers. Others remove the weekly pay cap, extend the service years that count, or offer a completely different formula — such as a fixed number of months' salary for each year of service.

Key differences at a glance

When do employers offer more than statutory?

Employers offer enhanced redundancy for a number of reasons:

• Attracting voluntary redundancies: A generous package encourages employees to volunteer, making the process smoother and less confrontational. This can be particularly important when an organisation needs to reduce headcount quickly.
• Retaining goodwill: Treating departing employees fairly can protect the employer's reputation, maintain morale among remaining staff, and reduce the risk of tribunal claims.
• Union negotiation: In unionised workplaces, redundancy terms are often subject to collective bargaining. Unions typically negotiate enhanced packages as part of broader agreements.
• Industry norms: In sectors such as financial services, the public sector and large corporates, enhanced redundancy is often an established part of the employment offering. Employers in these sectors may feel compelled to match competitors.
• Settlement agreements: Sometimes enhanced payments are offered as part of a settlement agreement (formerly called a compromise agreement), where the employee agrees to waive their right to bring tribunal claims in exchange for a higher payment.

Typical enhancements you might see

While every employer's scheme is different, some of the most common enhancements include:

• Higher multipliers: For example, 2 weeks' pay per year of service for all ages, or 3 weeks' pay per year for employees over 41.
• Uncapped weekly pay: Using your actual weekly salary rather than the statutory cap of £719 (£749 in NI).
• Longer service counts: Counting all years of service rather than capping at 20.
• Flat-rate formulas: For example, one month's actual salary for each year of service.
• Minimum payments: Guaranteeing a minimum lump sum regardless of the formula result.
• Additional benefits: Extended private medical insurance, outplacement support, career coaching or additional pension contributions.

In the public sector, enhanced redundancy schemes have historically been particularly generous, though many have been reformed in recent years. The Civil Service Compensation Scheme, for instance, offers terms that are significantly above the statutory minimum but has been subject to caps and reforms.

What should you check in your contract?

If you are at risk of redundancy, you should review the following documents carefully:

1. Your written employment contract: Look for any clause relating to redundancy, severance or termination payments.
2. The staff handbook or HR policies: Many employers set out redundancy terms in their policies rather than in individual contracts. Check whether the handbook is incorporated into your contract by reference.
3. Any collective agreement: If you are covered by a union agreement, ask your union representative for the current redundancy terms.
4. Previous communications: If your employer has previously communicated redundancy terms (for example, during an earlier round of redundancies), these may set a precedent, though they are not necessarily binding.

Pay particular attention to whether the enhanced scheme is described as "contractual" or "discretionary." If it is contractual, your employer must honour it. If it is discretionary, the employer retains the right to amend or withdraw the enhanced terms, though they should follow a fair process when doing so.

Can you negotiate a better package?

Yes, there is often room for negotiation, particularly if your employer is asking you to sign a settlement agreement. Before agreeing, consider taking advice from a solicitor or your trade union. Areas where negotiation is possible include:

• The overall financial package
• Payment in lieu of notice on top of the redundancy sum
• A contribution towards legal fees (typically £250–£500 plus VAT)
• An agreed reference
• Extended benefits such as healthcare or company car
• Outplacement support

Remember that your employer has no obligation to offer more than the statutory minimum unless your contract provides otherwise. However, many employers recognise that a fair package is in everyone's interest.

For more on enhanced packages and negotiation strategies, see our guide to enhanced redundancy packages.