Search

How can we help?

Icon

Enhanced redundancy packages explained

It is difficult for employees and employers alike when the time comes to make redundancies across a business. For those impacted, it can be particularly difficult to understand the terms used, and what your entitlements are as an employee. While statutory redundancy pay is a legal minimum entitlement for qualifying employees, many employers also offer enhanced redundancy packages as a gesture to ease transitions and reduce the risk of legal disputes.

To help employers and employees understand their rights, we have prepared a quick easy guide to redundancy pay, separating out what an employer must pay, and what they can pay.

Statutory Redundancy Pay

Employees are entitled to statutory redundancy pay if they:

  • Are legally classed as employees (not workers or self-employed);
  • Have been selected for redundancy; and
  • Have at least two years of continuous service with their employer.

The statutory calculation is based on:

  • Age,
  • Length of service (capped at 20 years)
  • Weekly gross pay (capped at £719 as of April 2025)

The formula for calculating this is :

  • 0.5 week’s pay for each full year under age 22,
  • 1 week’s pay for each full year aged 22–40,
  • 1.5 weeks’ pay for each full year aged 41 and over.

Other mandatory payments on termination would also include accrued but untaken annual leave and unpaid wages. Some employers, where the contract allows, may make a payment in lieu of notice.

For a quick calculation of your statutory entitlement, please check out our redundancy calculator. 

What Is Enhanced Redundancy Pay?

Enhanced redundancy pay is an amount offered by the employer in addition to the statutory minimum above. Employers may offer this:

  • As part of a contractual entitlement,
  • Through a collective agreement with a union,
  • Or on a discretionary basis

There is no legal obligation to offer enhanced redundancy pay unless it is contractually agreed.

An enhanced redundancy payment (also called an ex-gratia payment, or termination payment) is often based on an increase to the statutory minimum. For example, an employer may opt to pay 1 week additionally, for each complete years’ service, although such an approach can come with risks of age discrimination claims. Some employers instead take a more blanket approach, offering for example, 1 month pay to all employees impacted.

Enhanced redundancy packages may also include elements other than just a financial payment, for example: an agreed reference (beyond the standard factual); allowing employees to continue to use their company benefits after termination; payment for a discretionary bonus and/or under a company share plan.

Tax Implications

The first £30,000 of redundancy pay (including both statutory and enhanced elements) is generally considered tax-free. Any amount above this threshold would be subject to tax at the employees usual rate.

This £30,000 does not apply to any salary payments, including holiday, notice and unpaid wages.

The fact that such a payment is tax-free is often a key factor for employees, as an employee facing redundancy will often be considering how much they will actually end up with in their pocket.

There is no legal obligation to offer enhanced redundancy pay unless it is contractually agreed.

Settlement Agreements

It is common practice for employers offering enhanced redundancy on a discretionary basis (i.e. non-contractual) to require the signing of a settlement agreement in return for the discretionary increase.

The benefit of this for the employee is that they get an enhanced sum, and can agree terms such as payment of bonus, wording of references and announcements, waiver of non-competes, and any other terms that are important to them.

The benefit for the employer, is that in return for the discretionary payment, the employee confirms that it will not pursue a claim against the employer.

If an employer is offering a discretionary redundancy payment, we strongly recommend that employers look at their template settlement agreements, to ensure that they are not overly burdensome, and sufficient for the purpose. Employers are far more likely to end up in disputes if they ask an employee to sign excessive terms, which are entirely unnecessary in that redundancy situation.

Tips for Employers

There are a few potential pitfalls that employers should be wary of when offering enhanced redundancy.

If an employer usually offers a discretionary enhanced payment, this may result in a custom and practice argument where an employee can say that the employer usually does, so should offer it for them. Employees may feel aggrieved and challenge the decision if they are not offered enhanced terms that they have seen their ex-colleagues received time and again. We recommend employers consider their messaging around such changes if they are amending the usual offering.

Employers should also consider the risks of age discrimination when setting the criteria for enhanced redundancy calculations, and our employment team is on hand to provide tailored advice on this.

Employment Rights Bill

The Employment Rights Bill is currently making its way through Parliament, and at the time of writing we are expecting this to become law in Autumn 2025. The Bill contains significant changes to employment rights across a broad spectrum, including changes to the thresholds for collective consultation in a redundancy. These changes will impact every employer, and we strongly recommend that employers start taking action now to prepare for these changes.

To get to grips with what the bill means for your organisation, and what changes you specifically need to prepare for, we are offering a bespoke review for businesses of their risk areas and an accompanying action plan for preparing for the changes. Please reach out to our employment team for more information about this service.

Further information

Redundancy and reorganisation situations can be difficult for all those involved. Our employment lawyers offer clear and timely tailor-made advice to guide you through the process. Find out more about our redundancies and settlement agreements services.

 

Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

Author profile

Lucy White

Senior Solicitor

View profile

+44 118 960 4655

About this article

employmentboddy logo
clipboard logo HR Resources

Redundancy factsheet

This redundancy factsheet looks at the procedure to be followed before making an employee or employees redundant.

Read, listen and watch our latest insights

art
  • 16 October 2025

Chambers and Partners 2026: Clarkslegal’s continued commitment to excellence

Clarkslegal is delighted to announce that we have once again been recognised by Chambers and Partners as a leading firm in their 2026 guide.

art
  • 15 October 2025
  • Immigration

Registering a child as a British Citizen: A guide to section 3(1) applications

This article explains the process of registering a child as a British citizen under section 3(1), including the eligibility criteria, the Home Office approach, and key factors that influence whether an application is approved.

art
  • 15 October 2025
  • Commercial Real Estate

A commercial lease in England: a few essential points to consider

Thinking about a commercial lease in England? Whether your lease is short or long, here are five essential clauses to keep in mind during negotiations.

art
  • 13 October 2025
  • Privacy and Data Protection

AI and Data Protection: key legal developments in 2025 – 2026

The rapid integration of artificial intelligence into the workplace continues to reshape how organisations manage data, recruitment, and decision-making. Alongside this technological shift, UK and international regulators are introducing new legal frameworks designed to balance innovation with accountability.

Pub
  • 13 October 2025
  • Immigration

Spouse Visa UK Guide 2025

Our immigration solicitors have a proven track record of obtaining fiancé, spouse and unmarried partner visa for applicants wishing to come to the UK as the partner of a British/ Irish citizen or person present and settled in the UK.

Pub
  • 13 October 2025
  • Employee Ownership Trust

Get your tech business ready for market

We recommend taking the following steps to ensure your business is best placed to capitalise upon a quick and efficient sale process.