Redundancy Process UK 2026/27: Step-by-Step Employer Guide With Costs

Statutory redundancy pay: how the calculation works

Statutory redundancy pay is calculated using three variables: age, complete years of service (up to 20), and weekly pay (capped at £643 per week from April 2024). The multiplier is 0.5 weeks for each year worked under age 22, 1 week for each year aged 22–40, and 1.5 weeks for each year aged 41 and above.

As a worked example: an employee aged 38 with 8 years of service on a £35,000 salary (weekly pay £673, capped at £643) would receive 8 × 1 × £643 = £5,144 in statutory redundancy pay. The first £30,000 of redundancy payments is generally free from income tax.

Many employers offer enhanced redundancy terms beyond the statutory minimum, particularly for longer-serving employees. Where enhanced terms exist, document them clearly in employment contracts or a standalone redundancy policy so they are enforceable and consistently applied.

Notice pay and payment in lieu of notice

Statutory minimum notice is one week for each complete year of service, up to a maximum of 12 weeks. Contracts often specify longer notice periods, in which case the contractual period applies. Notice must be served or bought out — whichever is the right approach depends on the circumstances and contract terms.

Payment in lieu of notice (PILON) is taxed as earnings where there is a contractual PILON clause. Where there is no contractual right, tax treatment is more complex; take payroll or legal advice before paying PILON without a clause. Accrued but untaken holiday must also be paid out on termination.

Include notice and holiday pay in your redundancy cost model from the outset. Both are legal obligations and are easily missed when the focus is on the headline redundancy payment. For a £35,000 employee with 3 months notice, PILON represents approximately £8,750, which can dwarf the statutory redundancy amount.

Process steps and consultation obligations

For individual redundancies, employers must follow a fair process: establish a genuine redundancy situation, apply fair selection criteria, consult meaningfully with the affected employee, and consider suitable alternative roles. For 20 or more redundancies in 90 days, collective consultation rules apply and minimum 45-day consultation periods are required.

Documentation is as important as the arithmetic. Keep consultation records, scoring evidence, meeting notes and all written communications. Employment tribunals frequently find in employees' favour not because the redundancy was commercially unjustified but because the process was flawed or inconsistently applied.

If using a scoring matrix for selection, apply it consistently and document rationale for each decision. Avoid criteria that could be directly or indirectly discriminatory, such as selecting solely on absence records where protected characteristics are linked to the absences.

Total cost modelling for redundancy decisions

A complete redundancy cost model should include: statutory redundancy pay, contractual notice or PILON, accrued holiday pay, any enhanced terms, settlement agreement value where applicable, and professional support costs. It should also include the ongoing salary saving used to justify the decision.

Calculate the payback period: total redundancy cost divided by monthly salary saving gives the number of months before the business breaks even. For a £35,000 role costing £18,000 to exit, with a monthly saving of £2,916, payback is approximately 6.2 months. Decisions made without this figure tend to be harder to defend at senior review.

Where settlement is likely, model a realistic settlement scenario alongside the statutory baseline. Settlement agreements typically exceed the statutory minimum in exchange for a waiver of employment tribunal claims. Legal costs, both employer-side and the contribution to employee advice, should be included in the settlement total.

Reducing operational and legal risk

The most common redundancy legal risks are: failure to consult meaningfully, inconsistent selection criteria, failure to consider alternative roles, and procedural irregularities (wrong notice, wrong pay). Addressing these before the process starts is cheaper than resolving them after an employment tribunal claim.

Brief line managers before any employee-facing meetings. Inconsistent messages between HR and line management, or promises made informally by managers, can undermine process integrity. Use a script or talking points for difficult conversations.

Where legal risk is elevated — for example where the employee has or may claim a protected characteristic, or where unfair dismissal risk is real — take employment law advice before serving notice. The cost of early legal advice is almost always less than tribunal defence costs.

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Frequently asked questions

How much does it cost to employ someone in the UK?

The true cost to employ someone in the UK is typically 15–20% above gross salary. At £30,000: employer NI £3,750 + pension £713 = approximately £34,463 per year. At £50,000: employer NI £6,750 + pension £1,313 = approximately £58,063 per year. Adding workplace overheads of £2,000–£5,000 can bring the total to 20–25% above the headline salary.

What is the employer NI rate for 2026/27?

For 2026/27, employer Class 1 National Insurance is charged at 15% on employee earnings above the secondary threshold of £5,000 per year (£96 per week, £416 per month). This rate increased from 13.8% in April 2025, when the threshold was simultaneously cut from £9,100 to £5,000. Both changes apply from 6 April 2025.

How much employer NI do I pay on a £35,000 salary?

At £35,000 salary, employer NI for 2026/27 is £4,500 per year — 15% on £30,000 of earnings above the £5,000 threshold. That is £375 per month. In 2024/25, the same salary produced £3,585 in employer NI. The April 2025 changes therefore add £915 per year on this salary alone.

What is Employment Allowance and who can claim it?

Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500 in 2026/27, increased from £5,000 in 2024/25. The previous £100,000 NI bill eligibility cap has been removed, so more businesses qualify. Companies where the only paid employee is also a director cannot claim. Apply through payroll software via the Employer Payment Summary indicator.

What is the total employer cost above salary?

Beyond salary, employer cost includes: employer NI (15% on earnings above £5,000), employer pension (minimum 3% of qualifying earnings between £6,240 and £50,270), and overheads such as equipment, software and workspace. For most UK salaries this adds 12–20% above headline pay. Use the inputs above to set your exact pension rate and overhead figure.

What changed for employers in April 2025?

Three changes took effect from 6 April 2025: the employer NI rate rose from 13.8% to 15%, the secondary threshold was cut from £9,100 to £5,000, and Employment Allowance increased from £5,000 to £10,500 with the eligibility cap removed. For a £30,000 salary, annual employer NI increased from approximately £2,884 to £3,750 — a rise of £866 per year.

How is employer NI different from employee NI?

Employer NI is a cost paid by the employer on top of gross salary — it does not reduce take-home pay. Employee NI is deducted from the employee's wages instead. For 2026/27, employees pay 8% on earnings between £12,570 and £50,270, then 2% above that. Employers pay 15% on all earnings above £5,000 with no upper cap. This calculator covers the employer side; for employee take-home pay see AfterTaxSalary.co.uk.

What are employer costs in the UK?

UK employer costs in 2026/27 are: gross salary, employer NI at 15% on earnings above £5,000, employer pension at minimum 3% of qualifying earnings (£6,240–£50,270), and any operational overheads such as equipment or software. For a £35,000 salary, statutory employer costs (NI + pension) add approximately £5,363/year before overheads.

How much do I cost my employer in the UK?

If you earn £35,000, you cost your employer roughly £40,363/year — your salary plus £4,500 employer NI and £863 minimum pension. At £50,000, the total is approximately £58,063. Your employer pays these on top of your salary; they are not deducted from your pay. Use this calculator to see the exact figure for your salary.

Is this a PAYE cost calculator for employers?

Yes. PAYE employer costs include employer NI — calculated at 15% above £5,000 for 2026/27 — plus the employer's auto-enrolment pension contribution. The full calculator models both alongside any overhead assumptions to give a total PAYE-basis employer spend per employee.

What is a cost to company (CTC) salary in the UK?

Cost to company (CTC) in the UK refers to the total annual cost of an employee to their employer — salary, employer NI, pension, and overheads combined. A £35,000 CTC salary typically means a gross salary of roughly £30,000–£32,000 once the employer's NI and pension obligations are included in the total. Use this calculator to work backwards from a CTC budget to a gross salary.