Enhanced Redundancy Schemes
Understanding how enhanced redundancy schemes work and what to expect from different employers
What Are Enhanced Redundancy Schemes?
Enhanced redundancy schemes are voluntary employer policies that provide redundancy payments above the statutory minimum. They're designed to recognize long service, support employees through transition, and maintain good employee relations during difficult restructures.
Common Enhancements
- •Higher multipliers - 2x or 3x weeks pay instead of statutory rates
- •No weekly cap - using actual salary rather than £719 limit
- •Extended service recognition - counting 25+ years instead of 20
- •Removed total caps - no £21,570 maximum payment limit
Why Employers Offer Them
- •Recognize and reward employee loyalty and long service
- •Encourage voluntary redundancy applications
- •Maintain positive employee relations during restructuring
- •Reduce risk of employment tribunal claims
Enhanced vs Statutory: Example Comparison
Example: 45 year old, 15 years service, £50,000 salary
15 years × 1.5 weeks × £719 (capped weekly pay)
15 years × 3 weeks (1.5 × 2) × £962 (actual weekly pay)
15 years × 4.5 weeks (1.5 × 3) × £962 (actual weekly pay)
The difference between statutory and enhanced can be substantial, especially for longer-serving, higher-paid employees.
Sector-Specific Examples
Often 1.5x to 2.5x statutory with uncapped salary. NHS, local councils, and civil service typically have established enhanced schemes.
Banks and financial institutions may offer 2x to 4x multipliers with no caps for senior staff. Often includes outplacement support and extended notice.
Academic institutions typically offer 1.5x to 2x multipliers, recognizing long academic careers. May have age-related protections.
Fortune 500 and FTSE companies often have 2x to 3x schemes with additional benefits like healthcare continuation and career support.
Key Elements of Enhanced Schemes
Multiplier Approach
The most common enhancement multiplies the statutory calculation:
Salary Cap Removal
Using actual salary instead of £719 weekly cap significantly increases payments for higher earners:
Service Limits
Extending beyond statutory 20-year maximum:
Settlement Agreements and Enhanced Terms
Enhanced redundancy is often offered through settlement agreements (formerly compromise agreements). Understanding these agreements is crucial when considering enhanced terms.
What Is a Settlement Agreement?
A legally binding contract between you and your employer that typically offers enhanced terms in exchange for you agreeing not to bring claims against the employer.
- ✓Must be in writing and reference specific claims
- ✓You must receive independent legal advice
- ✓Employer usually pays for your legal fees (£300-£500)
- ✓Once signed, you cannot bring tribunal claims
Typical Enhanced Terms Offered
Increased payment above statutory, often 1.5x to 3x with uncapped salary
Longer notice period or immediate payment with enhanced terms
Healthcare, life insurance, or car allowance for extended period
Professional career coaching and job search assistance
Negotiating Enhanced Terms
If you're offered voluntary redundancy or settlement terms, there may be room for negotiation:
- 1Research comparables - Find out what others received in similar situations
- 2Know your worth - Consider your value, service, and any potential claims
- 3Request in writing - Ask for improvements to specific terms with justification
- 4Consider timing - Employers may be more flexible to avoid delays or uncertainty
- 5Get advice - Employment solicitor can advise on strength of position
Tax Treatment of Enhanced Payments
Enhanced redundancy payments benefit from the same £30,000 tax-free allowance:
First £30,000 of redundancy payment (statutory + enhanced + ex-gratia combined) is tax-free
Anything over £30,000 is taxed as earnings at your normal rate. PILON and holiday pay always taxable.
No NI on redundancy payments regardless of amount. Only PILON and holiday pay attract NI.
Use our Tax Calculator to estimate net payment after tax on large enhanced packages.