Redundancy is rarely a topic anyone looks forward to discussing. It is a sensitive, often stressful process for both the employer and the employee. However, from a payroll and HR perspective, it is a process that demands absolute precision.
At Hewitts Payroll, we believe that while you handle the human side of the transition, the technical side should be seamless. This guide outlines your obligations as an employer and how we ensure the final “thank you” is processed correctly.
Defining Redundancy
Before the numbers are crunched, it’s vital to ensure the situation qualifies as a genuine redundancy. In the eyes of the law, redundancy usually occurs when:
- The business (or a specific site) closes down.
- The need for employees to carry out work of a particular kind has ceased or diminished.
- A restructure renders certain roles unnecessary.
A Quick Tip: Redundancy is about the job, not the person. If the role still exists but the performance is the issue, you are likely looking at a disciplinary process rather than redundancy.
Statutory Redundancy Pay (SRP)
If an employee has been with your business for at least two years, they are legally entitled to Statutory Redundancy Pay.
The Calculation Matrix
The amount is calculated based on three factors: the employee’s age, their length of service (capped at 20 years), and their weekly pay.
| Employee Age | Entitlement per Year of Service |
| Under 22 | 0.5 week’s pay |
| 22 to 40 | 1 week’s pay |
| 41 and over | 1.5 weeks’ pay |
2026 Caps and Limits
For redundancies taking effect in the 2026/27 tax year, the government has set the following limits:
- Weekly Pay Cap: £751
- Maximum Statutory Payment: £22,530
Note: You can choose to pay more than the statutory minimum (Contractual Redundancy), but you cannot pay less.
The Final Pay Packet: What’s Included?
A redundancy payment is rarely just “redundancy pay.” The final payment usually consists of several distinct “buckets” of money, each treated differently by HMRC:
- Statutory/Contractual Redundancy Pay: The compensatory element.
- Notice Pay: If the employee isn’t working their notice period, this is called Pay in Lieu of Notice (PILON).
- Accrued Holiday: Payment for any holiday days earned but not taken.
- Arrears of Pay: Any final hours worked in the current pay period.
The Tax Question
This is where things often get tricky. As of 2026, the tax treatment of termination payments remains a high-priority area for HMRC.
The £30,000 Threshold
The first £30,000 of “qualified” redundancy payments is generally paid free of Income Tax and National Insurance.
The Exceptions (Post-Employment Notice Pay)
It is a common misconception that the entire final check is tax-free up to £30k. Notice pay and holiday pay are always taxable. HMRC views these as earnings from employment, not compensation for loss of office.
At Hewitts Payroll, we automatically calculate the “Post-Employment Notice Pay” (PENP) to ensure you don’t accidentally underpay tax and trigger an HMRC inquiry.
How to Prepare for the Final Run
To ensure your employees receive their final pay accurately and on time, we recommend the following checklist:
- Notice Dates: Clearly define the last day of work vs. the last day of the notice period.
- Holiday Audit: Confirm exactly how many hours/days of untaken leave are due.
- The Redundancy Letter: Provide a copy of the formal redundancy letter for our records; this helps us verify the “reason for leaving” code for RTI submissions.
- Benefits: Let us know if any non-cash benefits (like a company car or health insurance) are continuing post-termination.
Partnering with Hewitts Payroll
Redundancy is a journey through a legal minefield. Our role is to ensure that the financial exit is handled with dignity and total compliance. We take care of the P45 issuance, the complex PENP calculations, and the final RTI filings so you can focus on the future of your business.