Enhanced Redundancy Pay

Most employees know there is a legal minimum for redundancy pay. Far fewer know that their employer may be contractually obligated to pay significantly more than that — or that even where it is not written into a contract, a history of paying enhanced amounts may have made it an implied legal entitlement.

Enhanced redundancy pay is any amount above the statutory minimum. Understanding the difference between the two — and knowing when an employer has a legal duty to pay the higher amount — can be worth thousands of pounds.

Statutory vs Enhanced: The Key Differences

Statutory redundancy pay is the legal floor. It is calculated using age-band multipliers, capped weekly pay of £751 from April 2026, and a maximum of 20 years of qualifying service. For many employees, particularly higher earners or those with long service, it significantly undervalues what they have contributed.

Enhanced redundancy pay removes or raises those caps. A typical enhanced scheme might calculate pay using your actual uncapped gross salary rather than the statutory cap, use a higher multiplier — one month’s full pay per year of service rather than half a week — or reflect your full length of service beyond the 20-year statutory maximum.

The difference in practice can be substantial. An employee earning £60,000 with 15 years of service would receive statutory redundancy pay of around £6,000 — capped weekly pay multiplied by age-band multipliers. Under an enhanced scheme calculating on full salary at one month per year, the same employee could receive £75,000. The gap between those two figures is the conversation most employees never have.

When Is Your Employer Legally Required to Pay Enhanced?

Enhanced redundancy pay is not always discretionary. Your employer may be legally obligated to pay an enhanced rate in three situations.

Written contractual terms

If your employment contract, staff handbook, or a collective bargaining agreement with a trade union expressly states that the company pays enhanced redundancy — specifying the formula, the multiplier, or the conditions — that term is binding. Your employer cannot unilaterally decide to pay statutory minimum if the contract says otherwise.

Check your original contract of employment and any subsequent variation letters. Check the staff handbook — both the version current at the time of your employment and any version that applied when the enhanced policy was introduced. If a collective agreement applies to your role, obtain a copy.

Custom and practice

Even where enhanced pay is not written into a contract, it may have become an implied contractual term through custom and practice. This applies where the employer has consistently paid an enhanced rate over a significant period of time, the enhanced payment has been applied to all or substantially all employees in the relevant category, and it was sufficiently well-known that employees could reasonably have expected to receive it.

ACAS guidance confirms that a benefit applied regularly and consistently can become contractually implied — meaning your employer cannot simply choose not to apply it to you without your agreement.

“I had no idea our company had always paid two months per year of service until a colleague who left three years earlier told me what she received. My employer offered me statutory minimum. I asked for the history of payments. They settled at the enhanced rate within a week.”

— Reader, manufacturing sector, 12 years’ service

Discretionary enhanced pay

Some employers offer enhanced redundancy on a one-off basis — to encourage voluntary redundancy, to manage a large-scale restructure, or to protect the company’s reputation during a public downsizing. This is genuinely discretionary — but it is still negotiable. If your employer is offering enhanced terms to some employees, asking why those criteria apply and whether they apply to you is a reasonable and legitimate question.

The Tax Position on Enhanced Pay

Both statutory and enhanced redundancy pay count toward a single combined £30,000 tax-free exemption. This means if your statutory entitlement is £6,000 and your enhanced package is £40,000, the total is £46,000 — of which £30,000 is tax-free and £16,000 is subject to income tax at your marginal rate.

What does not count toward the tax-free allowance: PILON, accrued holiday pay, and regular earnings. These are always taxed at your normal rate regardless of the size of your package.

For packages significantly above £30,000, employer National Insurance can also apply on the excess. The classification of each payment component matters — requesting a written breakdown from your employer before payment is made is important.

Settlement Agreements and Enhanced Pay

Enhanced redundancy packages are almost always conditional on signing a settlement agreement — a legally binding waiver of your right to bring employment tribunal claims. Before signing, you must take independent legal advice from a qualified adviser. Your employer is required to contribute to the cost of that advice.

Do not sign a settlement agreement in exchange for enhanced pay without understanding what claims you are waiving. If the redundancy process was procedurally flawed — inadequate consultation, discriminatory selection criteria, failure to offer suitable alternatives — those claims have value that may exceed the enhanced payment being offered.

What to Do Now

Check your employment contract and staff handbook for any written enhanced redundancy policy — request copies from HR if you do not have them

Ask HR directly whether the company has an enhanced redundancy policy and whether it applies to your role

If you are aware of colleagues who received enhanced pay in previous redundancies, document that — it may support a custom and practice argument