What Severance Pay Rules Must Employers Follow in The United Kingdom?

Which Employees Qualify for Severance Pay?

• Employees with at least two years of continuous service who are dismissed by reason of redundancy generally qualify for statutory redundancy pay.
• Workers, agency staff, and self-employed contractors do not qualify for statutory redundancy pay, even if they have long service.
• Employees dismissed for misconduct or who resign without being formally redundant are not entitled to statutory redundancy pay.
• Employees who unreasonably refuse suitable alternative employment offered by your company can lose their statutory redundancy entitlement.
• Fixed-term employees whose contracts end by expiry may qualify only if the non-renewal is genuinely for redundancy and they have two years’ service.
• Employees may also be entitled to enhanced or contractual severance where your company has agreed this in contracts, policies, or collective agreements.

What Are the Legal Timelines for Paying Severance?

In the UK, statutory redundancy pay is normally due on or shortly after the employee’s final working day, unless you both agree a different payment date in writing. In practice, most employers pay redundancy together with the final salary, accrued holiday pay, and any notice pay in the last payroll run. You should confirm the payment date and method in the written redundancy outcome letter so there is a clear record. If there is a dispute about entitlement or calculation, you should still pay the undisputed amount on time and document any ongoing review. Late or missed payments can lead to tribunal claims and interest being added to the sums owed.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay statutory redundancy pay correctly, employees can bring claims in the Employment Tribunal, and you may face additional financial and reputational consequences. Tribunals can order you to pay the statutory amount owed, plus interest, and may also consider related claims such as unfair dismissal if the redundancy process was mishandled.

• You may be ordered to pay the full statutory redundancy pay plus any shortfall on underpayments.
• Interest can accrue on unpaid sums, increasing the total cost of non-compliance.
• You may face unfair dismissal awards if the redundancy process itself was not fair or properly consulted.
• Legal fees, management time, and reputational damage can far exceed the original redundancy cost.
• Non-compliance can strain relationships with remaining staff and trade unions or employee representatives.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (https://www.playroll.com/employer-of-record) in the UK does not remove the need to comply with statutory redundancy and severance rules, but it can change who is the legal employer on paper. Typically, the EOR is responsible for administering statutory redundancy pay and ensuring calculations meet Employment Rights Act 1996 requirements. However, your company usually drives the business decision to restructure, select roles at risk, and fund any statutory or enhanced severance. If you direct day-to-day work and decisions, you can still face joint or reputational risk if the EOR mishandles terminations. Your contract with the EOR should clearly allocate responsibility for redundancy consultation, calculations, funding, and defending any tribunal claims.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company navigate UK redundancy and severance rules by combining local legal insight with streamlined payroll execution. Your team gets support on eligibility checks, statutory redundancy calculations, notice and consultation timelines, and how to align any enhanced packages with your global policies. We also help you document decisions clearly so you can show a fair process if your choices are ever challenged.

When you use Playroll as your global employment partner, we coordinate with UK-qualified experts and, where relevant, act as Employer of Record to implement compliant terminations. That means accurate, on-time payments, correct tax and National Insurance treatment, and clear employee communications that reduce the risk of disputes or tribunal claims.