Voluntary Redundancy: Pay, Notice & Process 2026

Voluntary redundancy is an option for employers to consider as an alternative to making compulsory redundancies.

For employers, it is important to understand the legal and personnel issues of offering voluntary redundancy to avoid complaints and potential legal claims.

In this guide, we explain what voluntary redundancy means and how it works in practice, as well as the obligations on the employer and the rights and entitlements of employees through this process.

Section A: What Is Voluntary Redundancy?

Voluntary redundancy refers to a situation where job roles are no longer needed, perhaps because your organisation has recently undergone a restructure, you have invested in new technology making a number of jobs obsolete or you simply need to reduce your payroll liabilities, but where employees are given the choice to accept being made redundant. It involves an employee opting to leave under a redundancy dismissal, with employment ending on agreed terms, typically in return for a financial package.

A voluntary redundancy exit still sits within the redundancy framework. In legal terms, the employer is dismissing by reason of redundancy, not accepting a resignation. That distinction matters because employees can retain statutory rights and, depending on the facts, may still challenge the fairness of the process or bring related claims, even where they volunteered.

Redundancies can be difficult for employers and daunting for employees. Offering a voluntary option can reduce tension and give employees more control over their next steps. If enough people choose to leave, it can also reduce the need for compulsory redundancies.

1. How voluntary redundancy differs from compulsory redundancy

Compulsory redundancy refers to a redundancy situation in which you, as the employer, make the decision to terminate the employment of those selected for redundancy because you no longer need anyone to do the job role that they fill. Again, this might be because your business is changing what it does or doing things in a different way.

You need to be able to show that the employee’s job role will no longer exist for a redundancy to be genuine. Provided there is a genuine redundancy situation, the redundancy can be either compulsory or voluntary. A compulsory redundancy is where you decide who to make redundant out of the redundancy pool based on certain criteria. A voluntary redundancy is where individuals from that pool are invited to volunteer for redundancy, although a fair and objective selection process is still relevant, especially where there are more volunteers than the business can release or where the business needs to retain particular skills.

In practice, the key difference is how the process is initiated and how selections are made. Voluntary redundancy typically involves an invitation for expressions of interest and an offer process, while compulsory redundancy involves selection from the pool where the employer applies criteria and proposes dismissal. In both scenarios, consultation and fair handling remain central risk controls, particularly where individual circumstances, protected characteristics or contractual entitlements could affect outcomes.

2. Can an employer refuse voluntary redundancy?

An employer can refuse a voluntary redundancy request. Volunteering does not create an automatic entitlement to leave, even where the employer has opened a voluntary redundancy exercise. Employers often refuse requests where the employee is performing a business-critical role, where the team would lack coverage if the employee left, or where the employer needs to retain particular skills to run the post-change structure.

Refusals still need to be handled carefully. If you accept some volunteers and refuse others, the rationale should remain business-led and consistently applied. You also need to keep discrimination risk in view, for example if decisions appear to correlate with age, disability, pregnancy or other protected characteristics, or if the business applies a criterion that indirectly disadvantages a protected group. Where multiple volunteers come forward, a clear and documented decision framework helps manage perceptions of unfairness and reduces the scope for later challenge.

Section B: How Does Voluntary Redundancy Work in Practice?

Although voluntary redundancy involves employees putting themselves forward, it remains a redundancy dismissal within the statutory framework.

Under section 139 of the Employment Rights Act 1996, the definition of redundancy includes three limbs: redundancy may arise where the employer ceases or intends to cease carrying on the business, closes the workplace or where the requirement for employees to carry out work of a particular kind has ceased or diminished.

The fact that individuals volunteer does not remove the need for a fair process, meaningful consultation and strong record-keeping.

As an outline, the voluntary redundancy process usually involves the employer identifying the affected area or pool, communicating the proposal, inviting expressions of interest, assessing applications against business needs and, where appropriate, confirming dismissal by reason of redundancy. Each stage carries legal and employee relations risk if handled informally or inconsistently.

1. When employers offer voluntary redundancy

Employers commonly look to voluntary redundancy during restructuring, cost reduction programmes, technological change or departmental reorganisation. It is often presented as an initial step before compulsory redundancy is considered, with the intention of reducing the number of imposed dismissals.

At the outset, the employer should define clearly which roles or departments are affected and explain the business rationale for the proposed reduction. Employees need to understand why redundancies are being considered and how voluntary redundancy fits within that proposal. It is equally important to state expressly that volunteering does not guarantee acceptance. Where enhanced financial terms are proposed to encourage uptake, those terms should be outlined transparently from the start.

Where the proposal involves 20 or more redundancies at one establishment within a 90-day period, collective consultation obligations may arise under TULRCA. The availability of voluntary redundancy does not displace the need to consider whether statutory collective consultation requirements apply.

Failing to comply with collective consultation obligations can expose the employer to a protective award of up to 90 days’ gross pay per affected employee.

2. Application and selection process

Employees are usually invited to submit a written expression of interest in voluntary redundancy. This is generally non-binding at the point of submission, allowing the employer to assess applications before making a final decision.

Acceptance decisions should be grounded in business need and applied consistently. Difficulties often arise when several people from the same team volunteer, when the departure of a specialist would undermine operational capability or when the cumulative cost exceeds the restructuring budget. The employer therefore needs a coherent decision-making framework, even though the process is described as voluntary.

If an application is accepted, the employer should confirm in writing that employment will terminate by reason of redundancy and set out the relevant terms. If an application is refused, the reasoning should be documented and communicated, particularly where refusal could be perceived as inconsistent or linked to protected characteristics.

It is also necessary to keep sight of the underlying redundancy situation. In a genuine redundancy, it is the role that disappears, not the individual. As confirmed in White v HC-One Oval Ltd [2022] EAT 56, volunteering does not insulate the process from scrutiny. An employee may still challenge whether the redundancy situation was genuine or whether the surrounding process was handled fairly.

3. Notice period and termination arrangements

Once voluntary redundancy is agreed, termination follows the same framework as any redundancy dismissal. The employee remains entitled to statutory or contractual notice and to any other contractual sums due on termination.

Clarity at this stage reduces later disputes about entitlement, tax treatment or the legal basis of dismissal. The termination letter should therefore identify expressly that dismissal is by reason of redundancy, confirm the termination date, explain how notice will be treated and provide a detailed calculation of redundancy pay and any additional payments.

Employees are entitled to at least the statutory minimum notice period, calculated by reference to length of service. Statutory notice is one week for employees with between one month and two years’ service, and thereafter one week per completed year of service up to a maximum of 12 weeks.

Many contracts provide enhanced notice and employers should review contractual terms carefully before confirming arrangements to avoid breaching their obligations.

Where the contract permits payment in lieu of notice (PILON), employment may end immediately with a payment representing the value of notice. Employers sometimes combine PILON with redundancy compensation to accelerate the termination date, but the financial elements should be clearly separated and documented to avoid confusion or later challenge.

Section C: How Much Is Voluntary Redundancy Pay?

One of the most common questions in any voluntary redundancy exercise is how much the employee will receive. The financial terms often determine uptake. Even where employees volunteer, statutory minimum rights continue to apply if a genuine redundancy situation exists.

Employers therefore need a clear grasp of the statutory baseline, the scope for enhancement and the interaction between redundancy pay, notice pay and other termination sums. Miscalculation or poor communication at this stage frequently becomes the source of dispute.

1. Statutory redundancy pay calculation

If an employee has worked continuously for your business for at least two years, they will be entitled to statutory redundancy pay. The calculation is based on age, length of service and weekly pay, counted back from the effective date of termination.

The statutory formula provides half a week’s pay for each full year of employment between the ages of 18 and 22, one week’s pay for each full year between the ages of 22 and 40, and one and a half weeks’ pay for each full year aged 41 or over. Length of service is capped at 20 years and weekly pay is subject to a statutory maximum.

As at April 2025, the statutory cap on a week’s pay is £700 and the maximum statutory redundancy payment is £21,000. These limits are subject to annual review.

Employers are required to provide at least this minimum where the qualifying period is met. It is advisable to confirm in writing how the calculation has been reached, setting out the employee’s start date, length of service used, age bands applied and the capped weekly pay figure. Transparent calculations reduce the scope for challenge and reinforce confidence in the fairness of the exercise.

2. Enhanced voluntary redundancy packages

Many employers offer enhanced redundancy packages above the statutory minimum, particularly where the aim is to secure sufficient volunteers and avoid compulsory redundancies. Enhancement can take different forms. Some employers increase the weekly multiplier, others remove the statutory weekly pay cap, and some extend payments to employees who have not yet accrued two years’ service. Additional ex gratia compensation sums may also be offered.

Public sector employers often operate under compensation schemes that prescribe how voluntary exits are calculated. Private sector employers have greater discretion but should ensure that any enhanced scheme is applied consistently and that the eligibility criteria are clearly communicated. Inconsistent application can generate grievances or discrimination allegations, particularly where age and length of service influence payout levels.

Redundancy payments for long-serving employees can equate to significant sums, and the cumulative cost across multiple volunteers can materially affect cash flow and restructuring budgets.

3. Interaction with notice pay and other termination payments

Voluntary redundancy pay sits alongside other termination payments. Employees remain entitled to statutory or contractual notice, and that entitlement is separate from redundancy compensation. Notice may be worked in the usual way, or the employer may exercise a contractual right to payment in lieu of notice (PILON), bringing employment to an immediate end while paying the monetary equivalent of notice.

In addition to redundancy and notice pay, employers may need to account for accrued but untaken holiday, bonus or commission entitlements and any other contractual sums due up to termination. Each element should be clearly itemised in the termination letter so that the employee can see precisely what is being paid and on what basis.

Separating redundancy pay from notice pay in written confirmation is particularly important because the tax treatment may differ. Clear documentation at this stage reduces confusion over gross and net figures and protects against later assertions that the package was misrepresented or miscalculated.

Section D: Is Voluntary Redundancy Pay Taxable?

Tax treatment is often decisive in whether employees accept a voluntary redundancy offer. Employers should explain clearly which elements of the termination package are taxable and which may be paid free of income tax, as misunderstandings at this stage can quickly undermine confidence in the process.

Voluntary redundancy does not create a special tax category. The treatment depends on the nature of each payment.

1. The £30,000 tax-free rule

Genuine redundancy payments, including enhanced ex gratia sums paid in connection with termination, can normally be paid free of income tax up to £30,000. Any amount above that threshold is subject to income tax. Employer National Insurance contributions are also payable on amounts above £30,000, although employee National Insurance does not apply to qualifying termination payments.

The £30,000 exemption applies to qualifying termination payments. It does not apply automatically to all sums paid on exit. Employers therefore need to distinguish between redundancy compensation and other contractual payments.

Where enhanced packages are offered to encourage voluntary uptake, careful calculation is needed to determine how much of the overall payment falls within the tax-free threshold and how much exceeds it. Written breakdowns are advisable so employees can see clearly how their gross and net figures have been derived.

2. How notice pay is treated for tax

Notice pay is taxed differently from redundancy pay. Where employment terminates without the employee working their full notice and there is no contractual PILON clause, part of any termination payment may still be taxable as post-employment notice pay (PENP) under HMRC rules.

Statutory and contractual notice pay are subject to income tax and National Insurance contributions in the usual way.

Where an employer makes a payment in lieu of notice (PILON), that payment is treated as earnings and is fully taxable. It does not fall within the £30,000 tax-free exemption, even where it is paid as part of a voluntary redundancy package.

This distinction is important when communicating headline figures. An employee may see a large gross redundancy package but receive a materially lower net payment once notice pay and any excess over £30,000 are taxed.

3. Pension and benefit considerations

Voluntary redundancy can have pension implications, particularly for long-serving or older employees. Issues that often arise include:

• Whether redundancy triggers access to early retirement under a pension scheme
• How lump sums interact with annual allowance or lifetime allowance considerations
• The impact of termination timing on final salary calculations

Employees may also need to consider how a redundancy lump sum affects entitlement to means-tested benefits, as capital thresholds can influence eligibility.

While employers are not generally responsible for providing personal financial advice, signposting employees to independent advice or offering access to financial planning support can reduce later dissatisfaction and demonstrate responsible handling of the process.

Section E: Should You Offer Voluntary Redundancy?

Even though employees retain the same core statutory rights whether redundancy is voluntary or compulsory, including entitlement to redundancy pay, notice and time off to look for work where eligible, the strategic implications for employers differ.

Voluntary redundancy can reduce conflict, preserve morale and limit the need for imposed dismissals. It can also create new operational and legal risks if not carefully managed. The decision to offer voluntary redundancy therefore requires commercial judgement as well as legal discipline.

1. Potential advantages for employers

Offering voluntary redundancy can soften the impact of workforce reduction. By giving employees the choice to leave, employers may reduce allegations of unfairness because the exit follows an employee’s application rather than a unilateral selection decision.

Some employees may prefer to take redundancy for personal or professional reasons. They may already have been considering a career move, relocation or retirement. In those circumstances, voluntary redundancy can facilitate an orderly transition while helping the business reduce headcount without resorting to compulsory selection.

Voluntary uptake can also protect employees who are reluctant to leave. Where sufficient volunteers come forward, the employer may avoid compulsory dismissals altogether. From an employee relations perspective, this can preserve trust and reduce the likelihood of grievances or tribunal claims.

2. Risks and disadvantages

Voluntary redundancy is not risk free. Employers may receive applications from employees whose departure would materially weaken the business. Critical skills, leadership capability or operational continuity can be affected if the wrong individuals leave.

Although employers are not legally bound to accept every request, refusing volunteers can generate disappointment and disengagement, particularly where the employer has publicly promoted the exercise. Decisions to accept or reject applications therefore require clear reasoning and consistent application.

There is also financial exposure. Enhanced packages designed to encourage uptake can result in higher immediate costs than compulsory redundancy on statutory terms. Where multiple long-serving employees volunteer, the aggregate cost can exceed initial projections.

An employee who volunteers does not forfeit the right to challenge the fairness of the process. If the redundancy situation is not genuine, if consultation is inadequate or if the selection framework disadvantages a protected group, claims for unfair dismissal or discrimination can still arise.

3. Business impact and workforce planning considerations

Before launching a voluntary redundancy exercise, employers should model the likely operational impact. This involves examining how many roles genuinely need to be removed, what functions must be retained and how responsibilities will be redistributed.

It is also necessary to assess whether sufficient numbers are likely to volunteer. If uptake is low, the employer may still need to move to compulsory redundancy, which can create further disruption and reputational impact. Clear communication at the outset about the possibility of compulsory measures if voluntary numbers are insufficient can manage expectations.

A disciplined approach to workforce planning, cost forecasting and legal compliance reduces the likelihood that a voluntary redundancy exercise will drift into dispute. Voluntary redundancy can be an effective tool within a wider restructuring strategy, but it needs to be designed and implemented with the same care as any other dismissal process.

Section F: How to Manage the Voluntary Redundancy Process

Voluntary redundancy requires active management to mitigate the risk of grievances, discrimination allegations or unfair dismissal claims. Although employees apply to leave, the employer remains responsible for ensuring that the redundancy situation is genuine, that consultation is meaningful and that decisions are taken on lawful grounds.

1. Communicating the proposal

The starting point is a clear explanation of the business rationale for the proposed reduction in roles. Employees should understand why the organisation considers redundancies necessary and how voluntary redundancy fits within that strategy.

It is important to make clear from the outset that volunteering does not guarantee acceptance. The communication should explain the proposed redundancy pool or affected areas, the financial terms on offer and the timeframe for expressions of interest.

Where collective consultation obligations arise because 20 or more redundancies are proposed at one establishment within 90 days, employers need to comply with the statutory framework and consult appropriately with representatives. The meaning of ‘establishment’ depends on the organisational unit to which employees are assigned and is assessed on the facts.

Transparent communication at this stage reduces misunderstanding and helps to protect against later claims that the process was opaque or predetermined.

2. Assessing volunteers and applying fair criteria

Once expressions of interest are received, the employer should assess each request against business needs. This assessment may consider operational continuity, skill retention, team structure and cost impact. The fact that an employee has volunteered does not remove the need for objective reasoning, particularly where the number of volunteers exceeds the number of roles to be removed.

A documented framework assists in demonstrating consistency. Employers should record why particular applications are accepted or refused, especially where decisions could be perceived as linked to age, seniority, part-time status or other protected characteristics.

It is also important to remember that in a genuine redundancy situation, it is the role that disappears, not the individual. Employers cannot accept a voluntary redundancy and then recruit someone into substantially the same role without risk. Tribunals can still scrutinise whether the redundancy situation was genuine and whether the process was fair.

3. Confirming termination and documenting entitlements

Where a voluntary redundancy request is accepted, confirmation should be issued in writing. The letter should state clearly that the dismissal is by reason of redundancy, identify the termination date and set out notice arrangements. It should also provide a full breakdown of redundancy pay, notice pay and any additional sums.

Employers should also confirm the employee’s statutory right, where two years’ service is met, to reasonable paid time off during notice to look for work or arrange training.

If a settlement agreement is proposed, this should be introduced carefully and in accordance with the statutory requirements for a valid agreement, including the need for the employee to obtain independent legal advice.

Section G: Voluntary Redundancy and Settlement Agreements

Employers frequently use settlement agreements in the context of voluntary redundancy. Although the dismissal is by reason of redundancy, a settlement agreement provides additional protection by recording agreed terms and securing a waiver of claims.

A voluntary redundancy without a settlement agreement leaves open the possibility of tribunal proceedings, including claims for unfair dismissal or discrimination. Where enhanced payments are offered, employers commonly seek finality in return.

1. Why employers use settlement agreements in voluntary redundancy cases

A settlement agreement is a legally binding contract under which the employee agrees not to pursue specified claims against the employer in exchange for compensation. In a voluntary redundancy context, it formalises the termination and can cover statutory and contractual claims arising out of the employment relationship.

Employers typically use settlement agreements where enhanced payments are being made over and above statutory redundancy pay. The additional sum is often expressed as consideration for the waiver of claims. This approach reduces the risk that an employee later challenges the fairness of the process or alleges discrimination.

2. Legal requirements for a valid settlement agreement

The requirements for settlement agreements are set out in section 203 of the Employment Rights Act 1996. For a settlement agreement to be binding in respect of statutory claims, certain statutory conditions need to be satisfied. The agreement must be in writing, relate to specific complaints or proceedings and confirm that the employee has received independent legal advice from a qualified adviser. The adviser must carry appropriate insurance and be identified in the agreement.

Employers usually contribute towards the employee’s legal fees to facilitate this advice. Without compliance with these requirements, any purported waiver of statutory claims will not be effective.

Careful drafting is important. The agreement should clearly distinguish between statutory redundancy pay, which is an entitlement, and any additional ex gratia payment being made in return for the waiver.

3. Strategic considerations before proposing an agreement

While settlement agreements can provide valuable protection, they should be used proportionately. In low-risk scenarios where only statutory payments are being made and the process has been straightforward, some employers decide not to incur the additional cost.

Where there is heightened risk, for example because the employee has raised grievances, belongs to a protected group or disputes aspects of the consultation, a settlement agreement is often prudent.

Employers should also handle discussions about settlement carefully to avoid allegations of undue pressure. Providing reasonable time for consideration and making clear that the employee is free to decline the proposal supports the overall fairness of the process.

Section H: Alternatives to Compulsory Redundancy

Voluntary redundancy is one tool available to employers seeking to reduce headcount. It should not be viewed in isolation. Before moving to compulsory dismissals, employers are expected to consider whether there are reasonable alternatives that would avoid or limit job losses. Failing to explore alternatives can undermine the fairness of a redundancy process and increase exposure to unfair dismissal claims.

1. Suitable alternative employment within the business

Where vacancies exist elsewhere in the organisation, employers should consider whether employees at risk of redundancy can be redeployed. Suitable alternative employment may involve a different role, location or reporting line, provided it is reasonable in the circumstances.

The obligation to consider alternative roles applies whether redundancies are voluntary or compulsory. If an employee unreasonably refuses a suitable alternative role, entitlement to statutory redundancy pay may be affected. Clear documentation of redeployment discussions strengthens the employer’s position if later challenged.

2. Flexible working, reduced hours and other cost-saving measures

Employers may also explore temporary or permanent adjustments to working arrangements. These can include reduced hours, job sharing, voluntary sabbaticals or restrictions on overtime. In some cases, early retirement incentives may be appropriate, depending on pension scheme rules and workforce demographics.

Such measures can reduce payroll expenditure without terminating employment. However, changes to contractual terms generally require employee agreement. Imposed variations can trigger breach of contract or constructive dismissal risk if not handled carefully.

3. Recruitment freezes and contractor reductions

Before proceeding to compulsory redundancies, employers should assess whether cost savings can be achieved by freezing recruitment, not filling vacancies or reducing reliance on contractors and agency staff. Demonstrating that these options were considered, and implemented where viable, supports the argument that redundancies were a last resort.

A disciplined assessment of alternatives is particularly important in tribunal proceedings. Employers are expected to show that they acted reasonably in all the circumstances. Considering and documenting alternatives strengthens the overall defensibility of the redundancy exercise, whether voluntary or compulsory.

Voluntary redundancy can reduce the need for enforced dismissals, but it should form part of a broader restructuring strategy rather than operate as a standalone solution.

Section I: Summary

The redundancy process is inherently high risk and requires careful management to avoid complaints and potential legal claims. Even where redundancies are voluntary, employers remain responsible for ensuring that the redundancy situation is genuine, that consultation is adequate and that decisions are taken on fair and defensible grounds.

Section J: Need Assistance?

The redundancy process is high risk and requires careful management to avoid complaints and potential legal claims. Poorly managed redundancies can also result in workforce issues such as demotivation and loss of talent. To avoid issues when offering voluntary redundancy, contact us for specialist employment law advice.

Section K: Voluntary redundancy FAQs

What is voluntary redundancy?

Voluntary redundancy occurs where employees are invited to apply to leave their employment by reason of redundancy, usually in exchange for a redundancy payment. The dismissal remains a redundancy in law, even though the employee has volunteered.

Can an employer refuse a voluntary redundancy request?

An employer is not required to accept every application. Requests may be refused where the employee performs a critical role or where business needs require their retention.

Do employees lose their rights if they volunteer?

Employees who volunteer retain their statutory rights, including entitlement to redundancy pay where eligible, notice and the right to challenge the fairness of the process in appropriate circumstances.

Is voluntary redundancy pay taxable?

Redundancy compensation can normally be paid tax free up to £30,000, with amounts above that threshold subject to income tax. Notice pay is taxed separately as earnings.

Does voluntary redundancy avoid collective consultation?

Where an employer proposes 20 or more redundancies at one establishment within 90 days, collective consultation obligations may apply, regardless of whether redundancies are voluntary or compulsory.

Should employers use a settlement agreement?

Where enhanced payments are offered or there is elevated legal risk, a settlement agreement can provide additional protection by securing a waiver of claims in exchange for compensation.

Section L: Glossary

Section M: Useful Links