Severance pay in the UK: your legal rights, the legal minimum and how to calculate what is owed to you


Millions of jobs are threatened or are about to be threatened after their leave ends. Here is what to expect if you are made redundant, what your rights are and how to calculate your salary amount.

UK severance pay explained

With millions of jobs at risk (and many more to be so soon with the holiday ending in September), this guide will specifically take a look at severance pay in the UK, the minimum legal amount your company can pay you. and how to calculate what you will get.

If you want a more in-depth look at redundancy and how it might affect you, read this guide to UK redundancy: what to expect instead.

You will generally be entitled to severance pay if you are an employee who has worked for your current employer for at least two years.

But according to Citizens Advice, you’ll only get the money if it’s a “real layoff” – and you have the right to a consultation on why you’re being fired and alternatives.

If you are made redundant you need to make sure that you have not been discriminated against, which could be the case if the decision was made partly on the basis of gender, pregnancy, origin ethnic or other specific factors.

You can read more here, but it’s critical to stress that you can still be fired if you meet the above criteria, that just can’t be the reason you’re fired.

It is essential to check if you are fired for a valid reason. If the decision is based on certain factors – for example, asking for certain rights at work or filing a complaint, it could be an unfair dismissal.

Again, the above factors don’t protect you from being fired, it just can’t be the reason for the company’s decision.

If the company plans to lay off 20 or more employees, there must be a group layoff consultation.

Contact Citizens Advice if your business has not performed a group consultation, as you may be able to challenge their decision.

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Eligibility for severance pay in the UK

If you are fired (and the decision was made fairly), you can get two types of severance pay.

You might receive “statutory” termination pay, to which you are legally entitled, or “contractual” termination pay, which is an additional amount that your contract says you can get on top of the first.

The money will be paid by your employer.

If you have been employed continuously for two years by your employer and are considered an “employee”, you will receive statutory severance pay.

This also applies to part-time workers and those on fixed-term contracts of two years or more (or shorter consecutive contracts that total at least two years) if their employer no longer has a position available or chooses not to not renew their contract.

According to Citizens Advice, you will receive statutory severance pay if there was a real need for your employer to make redundancies.

There are a few cases where you will not receive statutory severance pay. For example, for professional misconduct, if your employer offers to keep you or offers you a suitable alternative position that you refuse without a valid reason.

The full list of reasons why you will not be eligible for statutory severance pay is detailed here.

When it comes to contractual severance pay, you should check your contract to see if it is specified. If you can’t find this in your contract, it’s worth asking your employer or consulting your personnel manual.

Your employer should calculate your contractual severance pay (if offered) and will tell you when to expect this payment.

According to Citizens Advice, the contractual severance pay cannot be less than the legal amount.

If you are having issues with your severance pay, speak to your union representative (if you are one) or an employee representative, or contact Citizens Advice.

If you are a union member, talk to your union representative first – he should have been involved in the dismissal negotiations.

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UK severance pay calculator: what is owed to you?

If you are entitled to statutory severance pay, you will receive for each full year of work for your employer:

  • Half a week’s salary up to 22 years;
  • One week’s salary if you are between 22 and 40 years old;
  • A week and a half of pay if you are 41 or over.

You can use this GOV.UK calculator to determine the amount of statutory severance pay you are entitled to.

The length of service is capped at 20 years and the maximum weekly amount you can get is capped at £ 544 per week (even if you earn more) or £ 16,320 in total which is not taxable.

You only pay tax if you exceed £ 30,000 for severance pay (including severance pay), as well as any salary or vacation pay the company owes you.

And if you turn 22 or 41 while working for your employer, you’ll only get the highest rates for the full years you were that age.

Your weekly pay is calculated as the average you’ve earned per week over the three months before your notice of layoff – and shouldn’t be affected by sick pay, maternity leave, or overtime.

Unfortunately, if you were made redundant before April 6, 2021, the amount you receive will be less.

If you were on leave due to the COVID-19 pandemic, your severance pay will be based on what you would normally have earned.

Your employer must pay your severance pay on the day you leave work or on an agreed date soon after in the same way you get paid. You should also get a written statement indicating how your severance pay was calculated.

How much notice am I entitled to?

You must be offered prior notice if you are made redundant.

The legal notice periods for dismissal are:

  • One week’s notice if you have been employed between one month and two years;
  • One week’s notice for each year if employed between two and 12 years;
  • 12 weeks notice if employed for 12 years or more.

Your employer should offer the above as a minimum, although they may give you a longer notice period. You should be paid throughout your notice period.

Note that your employment can be terminated without notice if “payment in lieu of notice” is in your contract, so your employer will pay you instead of offering you a notice period.

Your employer may offer the option of “payment in lieu of notice” even if it is not in your contract.

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Can i receive severance pay if i am temporarily terminated?

You can claim statutory severance pay if you’ve been temporarily dismissed without pay or less than half a week’s pay for more than four consecutive weeks or more than six non-consecutive weeks in a 13-week period.

In this situation, write to your employer to inform them of your intention to claim statutory severance pay – within four weeks of your last non-working day.

You should write to your employer again if they don’t reject your request within seven days of receiving it.

Can I benefit from severance pay if I am on a zero hour contract?

Whether or not people on a zero hour contract receive statutory severance pay depends on their definition as “worker” or “employee”.

“Your employment status – whether you are an ’employee’ or a ‘worker’ – determines your rights at work,” commented Matthew Bradbury, employment expert at Citizens Advice.

“Only ’employees’ are entitled to statutory severance pay.

“If you have a zero hour contract, your employer might classify you as a ‘worker’ and refuse to pay you severance pay on that basis.

“However, it might be possible to pretend that you are, in fact, an employee.

“These arguments are not legally simple and the time limits for action are short.

“That’s why if you’ve lost your job and have a zero hour contract, you need to seek help as soon as possible.

“Your local citizens’ council will be able to help you understand what you are entitled to. “

It should also be noted that you will still need two years of continuous employment to qualify for severance pay.

What are my next steps if I am made redundant?

If you have unfortunately been made redundant and cannot dispute it for whatever reason, there are steps you can take to help you get through this difficult time.

Check out loveMONEY’s step-by-step guide if you’ve been made redundant, including how to sort your finances, find your new career, and tips for dealing with it.

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