If you have two or more years’ service you are entitled to statutory redundancy pay, calculated from your age and length of service, with weekly pay capped at £751 and the total capped at £22,530 for redundancies on or after 6 April 2026. Statutory redundancy pay under £30,000 is not taxable. You are also owed notice — or pay in lieu of it — on top. Before you decide anything about the money, work out how many months it buys you.
What to do in the first week
Redundancy arrives as an emotional event and a financial one at the same time, and the emotional one is louder. The financial decisions, though, are mostly not urgent, and treating them as though they are is how people make expensive choices in the first fortnight.
Three things are worth doing quickly. Everything else can wait.
- Get the numbers in writing. Your redundancy payment, your notice pay, accrued holiday, and the date your employment actually ends. You cannot plan against a number somebody said in a meeting.
- Check the sums yourself. Statutory redundancy pay is formulaic and mistakes happen. The calculation is below, and there is an official calculator on GOV.UK.
- Work out your runway. Not what the payment is, but how many months of essential costs it covers. That number, not the lump sum, is what should drive every decision that follows.
What can wait: paying off a chunk of the mortgage, deciding whether to retrain, moving the money somewhere clever. None of those improve for being decided in week one.
What you are owed
Statutory redundancy pay
You normally qualify with two or more years’ continuous service. The formula uses your age during each year of service:
| Age during that year of service | You get |
|---|---|
| Under 22 | Half a week’s pay |
| 22 to 40 | One week’s pay |
| 41 or over | One and a half weeks’ pay |
Service is capped at 20 years. A week’s pay is your average over the 12 weeks before you got notice, and for redundancies on or after 6 April 2026 it is capped at £751, which puts the maximum statutory payment at £22,530.
Many contracts provide enhanced redundancy terms above the statutory minimum. Check yours, and check any collective agreement or staff handbook, because enhanced terms are common and frequently forgotten by the person being made redundant.
Notice, holiday and the rest
Notice is separate from redundancy pay and comes on top. The statutory minimum is at least one week if you have been employed between one month and two years, one week for each year between two and twelve years, and twelve weeks at twelve years or more. Your contract may give more; it cannot give less. Your employer either works you through the notice period or pays you in lieu of it.
You are also owed accrued but untaken holiday, and any contractual bonus or commission you have earned. Notice pay and holiday pay are taxable in the normal way.
Statutory redundancy pay under £30,000 is not taxable. That exemption applies to genuine redundancy compensation — not to notice pay, not to holiday pay, and not to a contractual bonus, all of which are taxed as normal earnings. If your total package looks large, ask your employer to break it down into what falls inside the exemption and what does not, because the two behave very differently on the way to your bank account.
Turn the lump sum into a number of months
A redundancy payment is the only time most people see a five-figure sum arrive at once, and the psychology is unhelpful: it feels like wealth rather than what it actually is, which is a fixed number of months of ordinary life bought in advance.
Convert it immediately. Add up your genuinely essential monthly costs — rent or mortgage, council tax and utilities, food, travel, insurance, childcare, minimum debt payments. Leave out everything you would stop paying for. Then divide.
Nine months is a completely different situation from three, and the difference should change your behaviour — how selectively you apply, whether retraining is realistic, whether to take the first offer. It is very hard to see that clearly while looking at a single large number and feeling either rich or frightened depending on the day.
Benefits you may be able to claim
Two are worth checking straight away, because both take time to come through and neither is means-tested on the redundancy payment in the way people assume.
- New Style Jobseeker’s Allowance is based on your National Insurance record from the last two to three tax years, not on your savings or your partner’s income. If you have been employed and paying Class 1 contributions, you may well qualify, and the redundancy payment does not disqualify you.
- Universal Credit is means-tested and does take savings and household income into account, with capital above £16,000 usually ruling it out. Worth checking anyway, particularly if you have housing costs or children.
Claiming also protects your National Insurance record in some cases, which matters for your state pension years later. Use the calculators at MoneyHelper or Citizens Advice rather than guessing, and do it in the first fortnight rather than when the money runs low.
What not to do with the money
Three moves are common and usually wrong.
Do not clear the mortgage with it. Overpaying feels responsible and turns accessible cash into equity you cannot spend. If you are out of work, liquidity is the thing you need most, and a mortgage overpayment is close to the least reversible thing you can do with a redundancy payment.
Do not invest it. Money you may need within a couple of years does not belong in the market. Being forced to sell during a downturn to pay the rent is how a temporary problem becomes a permanent loss.
Do not do nothing. Leaving a five-figure sum in a current account paying nothing is a real cost. An instant-access savings account or cash ISA keeps it available and earns something — and separating it from your spending account makes it much less likely to drift.
The exception worth considering is expensive debt. Clearing a credit card at 22% is a guaranteed return no savings account matches, and it also reduces your monthly essential costs, which extends your runway twice over. If debt repayments are a strain, free help from StepChange or Citizens Advice is worth more than any article.
Rebuilding the monthly plan
The hardest adjustment is not the lump sum, it is the monthly rhythm. Salary arriving on the 28th disappears, and in its place is a pot you are drawing down. Without a deliberate structure, spending tends to carry on at roughly the old level for two or three months, which is precisely the period when it matters most that it does not.
The approach that works is to pay yourself. Decide a monthly figure you will draw from the redundancy money, move it across on a fixed date, and treat that as your income. It restores the shape of a payday, makes overspending visible immediately rather than at the end, and stops the runway shortening without you noticing.
Set that figure from your essential costs plus a deliberately modest amount of discretionary spending — not zero, because a plan with no room in it fails within a month. Then re-run it whenever something changes: a benefit claim comes through, a freelance invoice lands, an offer arrives.
Frequently asked questions
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