Figures on this page (redundancy pay caps, tax thresholds, and tribunal award limits) are correct as of April 2026 and are reviewed periodically by the government — always check GOV.UK for the current position before relying on a specific number.
Introduction
Redundancy is one of the most common situations in which settlement agreements come up, and for good reason — it’s a dismissal an employer initiates, which naturally raises the question of whether the process was handled fairly, and both sides often have a shared interest in reaching a clean, certain outcome rather than leaving that question open.
If you’ve been offered a settlement agreement as part of a redundancy process, it’s worth understanding how it differs from your statutory entitlement, what it should contain, and what accepting it actually means for your rights. This guide walks through each of those questions. If you’re not yet familiar with settlement agreements generally, our pillar guide on What Is a Settlement Agreement in the UK and When Is It Used? is a good place to start.
Table of Contents
- Why Do Employers Use Settlement Agreements in Redundancy?
- Statutory Redundancy Pay vs a Settlement Agreement Package
- Are You Entitled to a Settlement Agreement During Redundancy?
- What Should a Redundancy Settlement Agreement Include?
- How Is a Redundancy Settlement Payment Taxed?
- Collective Redundancies and Settlement Agreements
- Do You Have to Accept a Redundancy Settlement Agreement?
- Contact Us for Redundancy and Settlement Agreement Advice
- Final Thoughts
- Frequently Asked Questions
Why Do Employers Use Settlement Agreements in Redundancy?
Employers aren’t legally required to offer a settlement agreement when making someone redundant — a straightforward, properly conducted redundancy can be concluded with nothing more than the correct statutory or contractual payment. Settlement agreements tend to appear when an employer wants more certainty than a standard redundancy process gives them.
That certainty usually comes down to risk. A redundancy dismissal can still be challenged as unfair dismissal — for example, if the selection process wasn’t genuinely fair, if suitable alternative employment wasn’t properly considered, or if consultation was inadequate. A settlement agreement lets the employer close off that risk in exchange for a payment above the statutory minimum, since a properly executed settlement agreement includes a waiver of the employee’s right to bring most tribunal claims relating to their employment or its termination. In return, employees are typically offered an enhanced payment — sometimes significantly more than they’d otherwise be entitled to — in exchange for giving up that right to claim.
Statutory Redundancy Pay vs a Settlement Agreement Package
It helps to be clear on what you’re entitled to regardless of any settlement agreement, so you can judge whether an offer is actually adding value.
If you have at least two years’ continuous service and are genuinely being made redundant, you’re entitled to statutory redundancy pay, calculated using your age, length of service, and weekly pay, capped at 20 years’ service. From 6 April 2026, the weekly pay figure used in that calculation is capped at £751 in Great Britain, meaning the maximum possible statutory redundancy payment is £22,530, however long your service or however high your actual salary. If your contract provides for a more generous redundancy scheme, you’re entitled to whichever is higher.
A settlement agreement redundancy package is typically built on top of this baseline — adding an enhanced redundancy payment above the statutory or contractual minimum, sometimes payment in lieu of notice, outstanding holiday pay, and occasionally other elements like a contribution toward legal fees or an agreed reference. The table below summarises the key differences.
| Statutory/Contractual Redundancy Alone | Settlement Agreement Redundancy Package |
|---|---|
| You keep the right to bring most tribunal claims | You waive the right to bring most tribunal claims |
| Payment is capped by the statutory formula (or your contract) | Payment can exceed the statutory or contractual minimum |
| No requirement for independent legal advice | Independent legal advice is a legal requirement for the agreement to be valid |
| Simpler, but leaves any unfairness unresolved if it arises later | Provides a clean break, but is final once signed |
Are You Entitled to a Settlement Agreement During Redundancy?
No — there’s no automatic right to be offered a settlement agreement during redundancy. Your entitlement is to a fair redundancy process and, where you qualify, your statutory or contractual redundancy pay. A settlement agreement is something an employer chooses to offer, usually because they see a benefit in securing a waiver of claims, and you’re free to ask for one if it hasn’t been offered, though there’s no obligation on the employer to agree.
This is a useful thing to keep in mind if you believe your redundancy selection or consultation process has been handled poorly — you may have more leverage to negotiate an enhanced settlement than you’d expect, precisely because the employer may want to close off the risk of a claim. Our guide on Can You Negotiate a Settlement Agreement? covers how that process typically works in practice.
What Should a Redundancy Settlement Agreement Include?
A redundancy-specific settlement agreement should cover everything a standard settlement agreement does, with a few points particular to redundancy worth checking carefully. It should set out the total payment clearly, broken down between the statutory or contractual redundancy element, any enhancement above that, notice pay, and outstanding holiday — this breakdown matters because different elements are taxed differently, covered in the next section. It should confirm your termination date precisely, address any post-termination restrictions that still apply from your original contract, deal with the return of company property, and specify whether you’ll receive a reference and, if so, its content.
For a full breakdown of the terms a settlement agreement should generally contain, our guide on What Should Be Included in a Settlement Agreement? covers this in more detail.
How Is a Redundancy Settlement Payment Taxed?
Genuine redundancy payments — statutory and contractual — along with most other genuine termination payments made under a settlement agreement, can usually be paid free of tax and National Insurance up to a combined total of £30,000. Above that threshold, the excess is generally subject to income tax, and since 2020 employers have also had to pay employer National Insurance contributions on the amount above £30,000 (this employer NIC liability doesn’t reduce what you personally receive).
It’s worth being careful here: not everything in a settlement agreement necessarily counts toward that £30,000 tax-free treatment. Payment in lieu of notice, for instance, is normally taxed as earnings in the usual way, and holiday pay is always taxable. This is precisely the kind of detail where getting it wrong can be costly, and it’s one of the reasons the independent legal advice you receive before signing should specifically address how your particular payment has been structured.
Collective Redundancies and Settlement Agreements
If your redundancy is part of a larger round — generally, where an employer proposes to make 20 or more employees redundant at one establishment within a 90-day period — the employer has a separate legal duty to collectively consult with appropriate employee representatives before any dismissals take effect, running for a minimum of 30 days where 20 to 99 redundancies are proposed, or 45 days where 100 or more are proposed. This collective consultation duty exists alongside, not instead of, individual consultation with you personally.
This matters to settlement agreements because the stakes for employers have risen considerably. From 6 April 2026, (under the Employment Rights Act 2025) the maximum “protective award” an Employment Tribunal can order against an employer for failing to properly collectively consult doubled from 90 to 180 days’ pay per affected employee — a significant increase that gives employers even more incentive to get collective consultation right, and can strengthen an employee’s negotiating position where it wasn’t handled properly. Further changes are also expected during 2027, introducing an additional organisation-wide threshold for when collective consultation is required, alongside the existing single-establishment trigger — worth checking for the latest position if your redundancy falls in that window.
If you believe collective consultation obligations weren’t met in your case, it’s worth raising this specifically when discussing any settlement offer, since it directly affects what your claim might otherwise be worth.
Do You Have to Accept a Redundancy Settlement Agreement?
No. You are never obliged to sign a settlement agreement, whether it’s offered during redundancy or in any other circumstance, and you can’t be forced to give up your legal rights without your agreement. If you decide not to sign, the redundancy process simply continues on its ordinary statutory or contractual terms, and you retain whatever rights you’d otherwise have — including the ability to bring a tribunal claim if you believe the redundancy wasn’t handled fairly.
Our guide on Do You Have to Accept a Settlement Agreement? Your Legal Rights Explained covers this in more general detail.
Contact Us for Redundancy and Settlement Agreement Advice
Redundancy settlement agreements can look straightforward on the surface but often contain terms — particularly around tax treatment, post-termination restrictions, and what’s actually being waived — that are easy to miss without the right advice. Since independent legal advice is a legal requirement before any settlement agreement can take effect, this is one situation where getting that advice isn’t just sensible, it’s built into the process.
Final Thoughts
A settlement agreement during redundancy can offer real value — a cleaner break, a higher payment, and certainty for both sides — but it’s worth approaching with a clear understanding of what you’re entitled to regardless, what the agreement adds on top, and what you’re giving up by signing. Taking the independent legal advice you’re entitled to seriously, rather than treating it as a formality, is the single best way to make sure the agreement genuinely works in your favour.
Frequently Asked Questions
Do I have to be offered a settlement agreement if I'm made redundant?
Is a redundancy settlement payment tax-free?
Can I negotiate a redundancy settlement agreement?
What happens if I refuse to sign?
Do I need my own solicitor to review the agreement?
Does a bigger redundancy round change my position?
It can. Where 20 or more redundancies are proposed at one establishment, your employer has additional collective consultation obligations, and failing to meet them can significantly increase the value of a potential claim — which is worth factoring into any settlement discussion.