Losing Your Job: Redundancy Pay, Benefits and Budgeting

Losing your job usually means three pots of money to sort out at once: what your employer owes you, what the state will pay you while you look for work, and what you already have that needs protecting. The amounts and deadlines differ, and some of them are strict. You have 6 months from the day you are dismissed to apply for statutory redundancy pay, and if your employer has gone bust you cannot claim at all until you have a case number from the insolvency practitioner¹.

Statutory redundancy pay needs two or more years of continuous employment, and the maximum total is £22,530¹. It is not taxed and no National Insurance comes off it¹. On top of it you may be owed notice pay, holiday pay and final wages, and if the employer is insolvent the Insolvency Service can pay these instead, usually within 6 weeks of a complete application¹. Benefits such as Universal Credit and New Style Jobseeker's Allowance can be claimed straight away, and New Style JSA is based on your National Insurance record rather than your savings¹.

The first days after losing your job

The first week is mostly about gathering documents and starting claims, because several of the deadlines run from the day you are dismissed rather than from when you feel ready. Check your final payslip against what you were expecting: wages for time worked, holiday pay for leave you did not take, and notice pay if you were not asked to work your notice. If anything is missing, raise it with your employer in writing straight away, since a written record matters if the dispute later goes to a tribunal. You have 6 months from the day you are dismissed to apply for statutory redundancy pay, and you cannot claim from the Insolvency Service without a CN number if the employer is insolvent¹.

Start a benefits claim in the same few days. Universal Credit can be claimed while you still have redundancy money, and the guidance is to claim as soon as you can if you are getting redundancy pay¹. If you were pregnant or on maternity leave when the job ended, you may be able to claim Maternity Allowance if you cannot get Statutory Maternity Pay, for example because your employer has stopped trading⁵.

Money you already hold needs a quick check too. If you have savings spread across banks, building societies or credit unions, deposits are protected by the FSCS and you would get your money back within seven working days of a failure⁶. If you are giving up a car because running it no longer makes sense, tell DVLA so the vehicle tax can be refunded, and chase it if the refund cheque has not arrived after 8 weeks⁷.

Statutory redundancy pay: 2 years' service, up to £22,530

Statutory redundancy pay is the legal minimum an employer must pay when making you redundant. The qualifying rule is continuous employment for two or more years, and you must be classed as an employee rather than, for example, a contractor or agency worker¹¹. The maximum total of statutory redundancy payments you can get is £22,530².

The amount depends on your age, your length of service and your weekly pay, which is why two people made redundant from the same workplace on the same day can receive different figures. Your employer should set out the calculation in writing when it tells you about the redundancy. If your employer is solvent and refuses to pay, you can apply to make a written application to your employer or to a tribunal for an award, within six months of your job ending¹¹. In Northern Ireland the equivalent route is an Industrial Tribunal, again within six months¹¹.

If your employer is insolvent, the claim goes to the Insolvency Service instead, and the same two-year rule applies². The Insolvency Service does not tax or deduct National Insurance from a redundancy payment award². The dedicated page on statutory redundancy pay goes into the calculation bands in more detail.

Notice pay, holiday pay and final wages

Redundancy pay is only one part of what a job ending can owe you. The others are arrears of pay (wages for time you have already worked), holiday pay for untaken leave, and notice pay. If your employer is insolvent, the Insolvency Service can pay all of these, and it expects to make payments for redundancy pay, holiday pay and arrears of pay within 6 weeks of receiving your complete application and the information from the insolvency practitioner¹.

Notice pay has its own rules. Where you worked your notice but were not paid for it, the Insolvency Service can only legally pay claims for the part of your statutory notice period you worked, up to a maximum of 12 weeks². Where you were dismissed without notice, "loss of notice" compensation is worked out at one week's notice pay for every full year you were employed, with a maximum of 12 weeks' notice pay for those employed 12 years or longer².

Two deductions reduce what actually arrives. The Insolvency Service is required to deduct the value of any income-related benefits you were entitled to claim during your notice period, and wages you earn if you start a new job during that period are also deducted². Separately, if you claim statutory notice pay from the Insolvency Service, benefits such as Jobseeker's Allowance, Universal Credit, Statutory Maternity Pay, Pension Credit and Maternity Allowance are deducted from the claim¹².

There is an order to follow: before making a claim for loss of notice you must apply for redundancy and any other money you are owed first, even if you are not owed any money¹². The page on employer insolvency covers the full claim sequence.

Tax on redundancy and termination payments: the £30,000 rule

Statutory redundancy pay itself is tax free: the post-employment notice pay rules do not apply to it, so you pay no tax or National Insurance on it³. The rest of a termination package is treated differently, and the split matters because the parts treated as earnings are taxed in full.

Parts of a termination payment that count as earnings, and so are subject to tax and National Insurance, include unpaid wages, holiday pay, bonuses, payments for agreeing to a restrictive covenant, and payments instead of working during your notice, whether called PILON or severance pay³. Beyond those, you do not usually pay tax on the first combined £30,000 of additional severance or enhanced redundancy payments and non-cash benefits³. HMRC's statistics describe the same boundary: where payments and benefits on termination of employment are below £30,000, they will not be taxed as employment income¹³.

The part of a termination payment equivalent to what you would have earned if you had been working, covering PILON, gardening leave pay and what is called post-employment notice pay (PENP), attracts tax and National Insurance³. If the PENP amount is more than the total of any severance, enhanced redundancy or non-cash benefits you receive, you only pay tax on the amount you actually get³. Two worked examples from HMRC show how this plays out:

Some payments are outside tax and National Insurance altogether: employer contributions to a registered pension scheme, legal costs paid directly to your solicitor, and payments made because of injury, illness or disability that prevents you doing your job³. You may also be able to get part of a termination payment tax free if you are not UK tax resident for the whole tax year in which the employment terminates, or if you are a serving member of the armed forces or a seafarer³.

Universal Credit and New Style JSA: the benefits you may claim

Two benefits are the usual starting point after a job ends. Universal Credit is means-tested and replaces and combines 6 legacy benefits and tax credits for working-age households with a low income¹⁴. New Style Jobseeker's Allowance is contribution-based, built on your National Insurance record, and can be claimed alongside Universal Credit. If you get both at the same time, your New Style Jobseeker's Allowance payment will be deducted from your Universal Credit payment¹⁵. In Northern Ireland the same arrangement applies to New Style JSA¹⁵, and you may also be eligible to claim New Style Employment and Support Allowance at the same time as Universal Credit if illness or disability is the issue rather than jobseeking¹⁶.

Because New Style JSA depends on your record rather than your savings, people with redundancy money can still receive it even when Universal Credit is reduced to nothing by the means test. The two benefits also interact with back-to-work schemes: you may be referred to the Restart Scheme if you were claiming New Style JSA immediately before claiming Universal Credit, and the total time claiming New Style JSA and Universal Credit adds up to more than 6 months¹⁷.

Waiting for a first payment is a common gap. A Universal Credit advance payment can cover it, but the advance is a loan repaid from later Universal Credit payments, and if you stop getting Universal Credit the repayments are taken by other means, such as other benefit payments, your wages or through a debt collection agency¹⁸. If you were self-employed as well as employed and made a loss from self-employment, only your employment earnings are used to calculate how much Universal Credit you get¹⁹.

The wider system is still mid-transition. The move to Universal Credit affects Income Support, income-based Jobseeker's Allowance and income-related Employment and Support Allowance²⁰, so anyone still on one of those legacy benefits will eventually be migrated across. One deadline is worth watching if it arrives: if you get a letter about a New Style Jobseeker's Allowance closed claims review, you must call the telephone number on the letter within one month of receiving it, or the review will be closed and money owed may be lost²¹.

Budgeting on a reduced income: priority bills first

A drop in income is usually felt in the gap between the day the wages stop and the day the first benefit arrives. In Wales, the Discretionary Assistance Fund can make payments if you are experiencing extreme financial hardship, have lost your job, and have applied for benefits and are waiting for your first payment²². Wales also offers help with unexpected costs such as food and heating²³. In Northern Ireland, the Emergency Assistance Payment part of the same fund covers people in extreme financial hardship, for example those who have lost their job, applied for benefits and are waiting for a first payment with no other means of financial support²⁴. The Adviser Discretion Fund in Northern Ireland helps unemployed people facing financial barriers to starting or returning to work, and also employed or self-employed people facing financial difficulties²⁴.

Council tax is a priority bill because the consequences of missing it escalate quickly. In Scotland, if you miss a payment after 31 December you will also get a final notice and must pay the full remaining balance²⁵. The practical approach is to sort bills into those with legal consequences for non-payment, such as council tax, rent, mortgage and energy, and those that can wait or be negotiated.

Free guidance is worth using at this stage rather than paid services. MoneyHelper's support and guidance are free²⁶, and the same is true of the advice services listed later on this page. If money is very tight, check whether any savings you hold are protected: the FSCS covers deposits, and its protection guidance is free to read²⁶.

Mortgage, rent and loan payments when your income drops

Housing costs are usually the largest single bill, and help exists at each stage. You could get help to pay your rent if you are unemployed, on a low income or getting benefits²⁷. In Northern Ireland, if you are on a low income, whether you are working or not, and need financial help to pay all or part of your rent or rates, you may be able to get Housing Benefit, Lone Pensioner Allowance or Rate Relief²⁸.

For homeowners, support for mortgage interest can help with interest payments on a mortgage, and in Northern Ireland there is also a Mortgage Interest Run On for people whose income-related Employment and Support Allowance is stopping because they return to work full-time, work more hours, or earn more money²⁹. If you are struggling, free legal advice is available through the Housing Loss Prevention Advice Service, and you can also get free advice from your local council³⁰. The general guidance on repossession sets out the steps lenders must follow³⁰.

Some routes carry risks worth knowing about before you take them. Sale and rent schemes, where you sell your home to a company and rent it back, can affect your entitlements: you may not be able to claim Housing Benefit if you have a low income or you lose your job³¹. If you have acted as a guarantor for someone else's tenancy and cannot pay what you owe as a guarantor, the landlord can take legal action against you to recover the costs³².

If you are supporting a partner or child through student finance, a drop in household income can be reflected: if your income has gone down by at least 15% since the relevant tax year, you can apply for a current year income assessment³³. The wider life events guide covers how other changes interact with money you receive.

When your employer does not pay or goes bust

An employer that cannot or will not pay what it owes changes the process completely. The claim moves to the Insolvency Service, but only once the insolvency has happened: you will not be able to apply until the date of the insolvency¹. You also need a CN number, which comes from the insolvency practitioner handling the employer's affairs, and you cannot claim without one¹.

The Insolvency Service can pay redundancy pay if you are an employee and have worked for your employer for at least 2 years¹. It can also cover holiday pay and arrears of pay, with payments expected within 6 weeks of a complete application¹. Where the employer is solvent, the position is narrower: the Insolvency Service can only pay redundancy pay². In Northern Ireland, the equivalent claims also require a written application to your employer or an Industrial Tribunal award within six months of your job ending¹¹.

Other entitlements follow their own routes. If your employer does not pay Statutory Maternity Pay because it is insolvent, payment will be made by HM Revenue and Customs from and including the week of the insolvency³⁴. Unpaid pension contributions are covered too: you may also receive unpaid contributions payable by the employer on its own account, for the 12 months before your employer became insolvent¹¹.

If the employer is solvent but simply refuses to pay, the escalation path runs through the courts. A statutory demand is a formal request for payment, and if they ignore it or cannot repay the money, you can apply to a court to make someone bankrupt or get a company wound up³⁵. That is a serious step, and the free advice services below can talk through whether it is realistic.

Your workplace pension belongs to you

A job ending does not end the pension built up in it. Your workplace pension belongs to you, even if you leave your employer in the future⁴. If you stop paying into the scheme, you will still get that pension when you reach the pension scheme's age⁴. The same principle is stated for Northern Ireland: your workplace pension belongs to you, and your employer will pay into it while you work there³⁶.

Insolvency does not take the pension away. If your employer goes bust, you will not lose your pension fund³⁷. In a trust-based defined contribution scheme there is a caveat: if your employer goes out of business, you will get your pension, but your pension pot might be reduced, because administration costs are paid by members' pension pots³⁷.

Choices at this point are limited but real. You can leave the pension where it is, or move it. Employers must let you leave the pension scheme, called opting out, if you ask, and refund money you have paid if you opt out within 1 month³⁸. Opting out of a scheme you will rejoin at the next job usually means losing the employer's contributions in the meantime, so the decision deserves a look at the numbers rather than a snap response. If you find work with reduced hours, that could affect how much you get, so check with your employer³⁹. You can also claim a personal or workplace pension while working, as long as you have reached the age agreed with your pension provider³⁹.

Two further points matter for the long term. If you are unemployed you can receive National Insurance credits towards your basic State Pension provided you receive or received Jobseeker's Allowance, so a period between jobs does not have to leave a hole in your State Pension record⁴⁰. And if you are approaching later life, the page on retiring covers the decisions that come next.

*A pension statement lists the pot built up with a former employer, which stays with you after the job ends.

Free help and advice

Several sources of free help exist, and using them costs nothing. MoneyHelper's support and guidance are free²⁶. You can get free legal advice through the Housing Loss Prevention Advice Service if your home is at risk, and you can also get free advice from your local council³⁰. In Northern Ireland, the Adviser Discretion Fund can help with financial barriers to returning to work²⁴.

If you are worried about managing money yourself, perhaps because of illness, a needs assessment is free and can identify anything you may need help with⁴¹. For the wider picture of how a job change fits with everything else, the life events guide brings together the related pages, from starting a first job to going self-employed if the next step is working for yourself.