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UK Redundancy Law explained
UK Redundancy Law: Process, Pay, and Employer Obligations
Redundancy is a form of dismissal under UK law. It happens when an employer needs to reduce their workforce because a role is no longer needed, the business is closing, or the workplace is shutting down. It is not the same as firing someone for poor performance or misconduct.
If you employ people in the UK, you must follow a fair redundancy process. Getting it wrong can lead to unfair dismissal claims at an employment tribunal.
This guide covers the legal framework, pay calculations, consultation requirements, and how an Employer of Record manages redundancy on behalf of international companies.
What Is Redundancy Under UK Law?
The Employment Rights Act 1996 (ERA 1996), Section 139, defines redundancy as dismissal caused by:
- The employer ceasing to carry on business
- The employer ceasing to carry on business at the employee's workplace
- A diminished need for employees to do work of a particular kind
The third reason is the most common. It covers situations where technology replaces roles, the workload drops, or the business restructures.
Redundancy is always about the role, not the person. You cannot make someone redundant because of their performance or behaviour. That would be a disciplinary matter, not a redundancy.
Who Qualifies for Statutory Redundancy Pay?
To qualify for statutory redundancy pay, an employee must have at least two years of continuous service with the same employer. The employee must also be dismissed by reason of redundancy, not resign voluntarily.
Workers, agency staff, and people on fixed-term contracts that expire naturally generally do not qualify. Self-employed contractors are also excluded.
The two-year rule is strict. Even one day short of two years means the employee has no statutory right to redundancy pay, although they may still be entitled to notice and other protections.
For the 2025/26 tax year, the weekly pay cap was £719. For dismissals on or after 6 April 2026 (2026/27), it is £751, making the maximum statutory redundancy payment £22,530. Any earnings above this cap are ignored in the calculation.
Worked example:
An employee aged 45 with 12 years of service earns £800 per week.
- Years 1 to 12 at 41+ rate: 12 × 1.5 weeks = 18 weeks
- Weekly pay capped at £751
- Statutory redundancy pay: 18 × £751 = £13,518
The statutory minimum is a floor, not a ceiling. Many employers offer enhanced redundancy packages, especially in sectors with collective agreements or when contractual terms promise more generous pay.
What Is a Fair Redundancy Process?
Employment tribunals expect employers to follow a fair process. The key elements are:
You must use objective, measurable criteria to select who is made redundant. Common criteria include skills, qualifications, performance record, attendance, and disciplinary history. You must not select based on protected characteristics (age, sex, disability, race, pregnancy, etc.) or for exercising a statutory right.
Every affected employee must have a meaningful consultation meeting. You must explain why the redundancy is happening, how the selection criteria were applied, and consider any alternatives the employee suggests. The employee has the right to be accompanied by a colleague or trade union representative.
You must define a fair pool of employees from which selections are made. The pool should include everyone doing work of a particular kind. Narrowing the pool unfairly (for example, to target one person) is a common reason tribunals find redundancy unfair.
Employees should have the right to appeal the redundancy decision. A failure to offer an appeal process is not automatically unfair, but it strengthens any tribunal claim.