The two phrases are used as if they meant the same payment, and they do not. Redundancy pay is the statutory entitlement, calculated by a formula GOV.UK publishes. Severance pay is the broader word for what an employer pays on top, under a contract or by negotiation, with no statutory formula of its own. This guide separates the two, shows how each is worked out, and explains the one tax allowance they share.

The one-sentence difference

Redundancy pay is the statutory entitlement you get when your role disappears and you meet the qualifying rules. Severance pay is the broader, looser word for a payment made when employment ends, usually an enhanced, contractual, or ex-gratia payment that sits on top of, or instead of, the statutory figure. In the United Kingdom there is no separate statutory severance-pay formula alongside the statutory redundancy-pay formula. The statute provides redundancy pay, calculated by the age-band formula with a weekly pay cap. Everything else that is called severance pay, an enhanced package, a golden handshake, or an ex-gratia sum is a matter of contract, policy, or negotiation, and its amount is decided by whatever document promises it, not by GOV.UK. That single distinction explains nearly every confusion in this area, including why two people made redundant from the same employer can receive very different totals: the statutory floor is the same kind of calculation for both, and the severance element is whatever each person’s contract and circumstances produced.

Language in offer letters is not always tidy. A letter may call the whole payment severance pay, or redundancy pay, or a termination payment, and the label does not decide the tax treatment or the entitlement. What matters is which lines of the payment are statutory redundancy pay, which are contractual or enhanced, which are notice pay or holiday pay, and which are ex-gratia, a voluntary payment with no contractual obligation behind it. The sections below separate those lines, show how each is calculated, and show how tax treats the combined total. For the statutory calculation in full, with the caps for each year, see Redundancy Pay Explained: Statutory Pay, Notice, and Tax. This guide assumes that calculation and concentrates on what severance adds, how it is usually worked out, and how to read an offer that contains both.

Severance pay vs redundancy pay, side by side

England, Scotland and Wales. Northern Ireland caps differ. The tax row is the point most often missed: statutory and severance elements share one allowance, they do not each get £30,000.

Two rows of the table do most of the work. The first is the basis row: one payment is owed by law to people who qualify, the other is owed only because a document says so, and if no document says so, there may be no severance element at all, however long the service. The second is the tax row: the two elements are calculated separately and taxed together, within a single £30,000 allowance. A reader who adds £30,000 of tax-free statutory pay to £30,000 of tax-free severance pay has double-counted the allowance and will be surprised by the payslip. The tax section below works this through with figures.

How statutory redundancy pay is calculated

Briefly, because the full guide covers it: count complete years of service backwards from the leaving date, at most 20 years. Each year earns half a week’s pay if you were under 22 in it, one week’s pay if you were 22 to 40, and one and a half weeks’ pay if you were 41 or over. Multiply the weeks by your average weekly pay over the 12 weeks before you received your redundancy notice, capped at £751 for redundancies on or after 6 April 2026. A reader leaving at 45 after 12 years on £600 a week earns 14.5 weeks and receives £8,700. A reader leaving at 50 with 25 years on £900 a week earns 25 weeks at the capped £751 and receives £18,775. The Redundancy Calculator performs the same count for any age, service, and pay, and shows the band-by-band breakdown, which is the quickest way to see how much of a total comes from the 1.5 band and how much from the lower bands.

The statutory figure is a floor, not a prediction. It is the least your employer must pay if you qualify, and it says nothing about what your employer has actually offered. An offer letter that quotes only the statutory figure, with no enhanced element, is not necessarily wrong; it may simply mean no enhancement was promised. An offer that quotes a larger figure without a breakdown may be statutory pay plus an enhancement, or an enhancement calculated in a way that already includes the statutory element. The next section explains the methods employers use, so a breakdown can be recognised, and the final section gives a checklist for reading the letter itself.

How severance pay is calculated

There is no statutory severance formula to state, so this section describes the methods employers commonly use, as illustrations, not as rules. The governing document is always the contract, the redundancy policy, or the collective agreement, and the method it states is the method that applies. If the letter or policy does not state a method, the figure is a negotiated or discretionary sum, and it should be treated as such: ask for the calculation in writing before accepting it, just as GOV.UK requires a written statement for the statutory element.

Three methods cover most enhanced schemes. The first is a multiple of the statutory figure: twice statutory, three times statutory, or a similar multiplier. On the £8,700 statutory example above, twice statutory is £17,400. Whether that £17,400 includes the £8,700 or sits on top of it depends entirely on the wording of the scheme, and the difference is £8,700, so the wording must be read, not assumed. The second method is weeks of uncapped pay per year of service: for example, two weeks’ actual weekly pay per year, with no cap. Twelve years at £900 a week on that method is 12 x 2 x £900 = £21,600, against a statutory figure for the same person that would be capped and banded to something smaller. The third method is a flat sum, or a sum based on salary and service in a formula the employer states, such as one month’s pay per year of service. Each method can produce a larger total than the statutory floor, and each can produce a smaller one for a short-serving, lower-paid employee than a casual guess would suggest. No method is standard, and no method can be assumed from the word severance alone.

Voluntary redundancy deserves a separate line. An employee who volunteers for redundancy and is selected is still dismissed for redundancy purposes, and the statutory entitlement is not removed by volunteering. What volunteering can change is the severance element: some schemes offer an enhanced payment to volunteers, some offer the same terms to everyone selected, and some offer nothing beyond the statutory figure. The offer letter, not the word voluntary, decides. Similarly, a payment described as a settlement or compromise payment may include a severance element alongside other matters, such as an agreement not to bring claims; the tax treatment of the combined payment still turns on which lines are qualifying termination payments and which are earnings, and the £30,000 allowance still applies once, to the qualifying total.

Tax: one £30,000 pot, shared

Statutory redundancy pay, enhanced redundancy pay, and ex-gratia payments are added together and measured against a single combined £30,000 tax-free allowance. The first £30,000 of the combined qualifying total is normally free of Income Tax. Amounts above £30,000 are taxed as income, with no employee National Insurance on the excess. Notice pay, pay in lieu of notice, holiday pay, unpaid wages, and bonuses are taxed as earnings, with National Insurance, and do not use the allowance. GOV.UK’s Redundancy: your rights pages state the headline simply: statutory redundancy pay under £30,000 is not taxable, and what you pay tax and National Insurance on depends on what is included in your termination payment.

Two illustrations show why the shared pot matters. First, a reader with £8,700 of statutory pay and a severance element of £17,400, twice statutory, has a combined qualifying total of £26,100, all within the allowance, so none of it is taxed, while notice pay on top is taxed in full as earnings. Second, a reader with £18,775 of statutory pay and a £20,000 severance element has a combined total of £38,775, so £30,000 is tax-free and £8,775 is taxed as income. In both cases the payslip should show the split between qualifying payments and earnings; a single unexplained total is not enough to verify the tax. If the payment is large, or if part of it is described as a settlement payment, take advice before signing anything that waives claims, because the tax and the legal effect are decided by the documents, not by the headline figure.

Reading your offer letter: a checklist

Work through the letter line by line, with this guide and the calculator beside you. First, the service dates: complete years counted backwards from the leaving date, at most 20, and the age bands applied to each year. A wrong leaving date, or service counted forwards from the start date, changes the bands. Second, the weekly pay figure: the 12-week average before notice, and whether the £751 cap has been applied to the statutory line only, or wrongly to the whole payment. Third, the severance method: which of the methods in the previous section, stated in words, and whether the figure includes the statutory payment or adds to it. Fourth, notice and holiday: the notice period, whether it is worked or paid in lieu, and the accrued holiday days. Fifth, tax: the split between qualifying payments and earnings, and the £30,000 allowance applied once to the qualifying total. Sixth, the deadline: you normally have 6 months from the date your job ends to apply for statutory redundancy pay, and any settlement deadline in the letter is separate and should be treated as urgent. Seventh, suitable alternative work: whether any was offered, and whether a four-week trial period applies.

If any line does not match your own calculation, ask for the written statement of how the payment was worked out, which your employer must provide for the statutory element, and raise the discrepancy in writing before the deadline passes. Acas and Citizens Advice can advise on the process, and an employment adviser can check a large or complex offer, including any settlement terms. The aim of the checklist is not to turn every redundancy into a dispute. It is to make sure the figure you accept is the figure the rules and your contract actually produce, with the statutory floor, the severance element, the notice, the holiday pay, and the tax each in their right place, and nothing counted twice or left out.

Frequently asked questions

Is severance pay the same as redundancy pay?

No. Statutory redundancy pay is the legal minimum owed to qualifying employees who are made redundant, calculated by the age-band formula with a weekly pay cap. Severance pay is the broader word for a payment on leaving, usually an enhanced, contractual, or ex-gratia payment on top of, or instead of, the statutory figure. In the UK there is no separate statutory severance formula. The two elements are calculated differently but share one 30,000 pound tax-free allowance.

How is severance pay calculated in the UK?

There is no statutory method. It is calculated however the contract, redundancy policy, or collective agreement says: commonly a multiple of the statutory figure, a number of weeks of uncapped weekly pay per year of service, or a flat sum. Twice the statutory figure on an 8,700 pound statutory payment is 17,400 pounds; two weeks of uncapped pay per year for 12 years at 900 pounds a week is 21,600 pounds. Always check whether the enhanced figure includes the statutory payment or is paid in addition to it.

Is severance pay taxed?

Severance pay that qualifies as a termination payment counts towards the same combined 30,000 pound tax-free allowance as statutory redundancy pay. The first 30,000 pounds of qualifying payments combined is normally tax-free; anything above 30,000 pounds is taxed as income, with no employee National Insurance on the excess. Notice pay, holiday pay, and unpaid wages are taxed as earnings with National Insurance and do not use the allowance.

Can I get both redundancy pay and severance pay?

Yes, if you qualify for statutory redundancy pay and your contract or scheme also promises an enhanced or ex-gratia payment. The two are paid together as one final payment, with the statutory figure as the floor and the severance element on top, unless the scheme wording says the enhanced figure already includes the statutory payment. Check the letter: the wording decides whether the figures add together or overlap.

What is an ex-gratia payment?

An ex-gratia payment is a voluntary payment made without a contractual obligation, often as part of a redundancy or settlement package. The name comes from the Latin for a payment made as a favour. For tax, an ex-gratia payment that forms part of a termination payment counts towards the same combined 30,000 pound tax-free allowance as statutory and enhanced redundancy pay. The amount is whatever the employer offers; there is no formula for it.

Should I accept a severance offer or wait for statutory redundancy pay?

That is a decision for advice, not for a calculator. Compare the offer line by line against your own statutory calculation, check whether the enhanced figure includes the statutory payment, confirm the notice, holiday, and tax treatment, and note the 6-month deadline for claiming statutory redundancy pay and any settlement deadline in the letter. Acas, Citizens Advice, and an employment adviser can check a large or complex offer before you sign anything that waives claims.

Sources: GOV.UK, Redundancy: your rights (statutory pay, caps, notice periods, and deadlines), checked 31 October 2026. Figures are for England, Scotland and Wales. This guide is information only, not legal or financial advice.