Voluntary redundancy: should you take it?
How the pay and tax work, whether you can still claim benefits, and how to judge if the offer is worth it.
What is voluntary redundancy?
Voluntary redundancy is where an employer that needs to cut jobs asks staff to volunteer to leave, usually in exchange for an enhanced payment. It is still a genuine redundancy, because the role is disappearing. Two things are worth knowing: you cannot be forced to volunteer, and your employer does not have to accept your application if it needs to keep your skills. Almost every voluntary redundancy is completed through asettlement agreement, which is the document that sets out your payment and requires you to take independent legal advice before signing.
How much is voluntary redundancy pay?
Your legal minimum is statutory redundancy pay, calculated from your age, length of service and weekly pay (capped at £751 for 2026/27). To attract volunteers, employers usually offer an enhanced package on top, often a flat number of weeks' pay for each year of service with the age bands and the weekly cap removed. Use theredundancy pay calculator for your statutory floor, then compare the offer against it. The gap between the two is the enhanced element, and it is usually the part worth checking.
Is voluntary redundancy pay taxable?
The redundancy element is taxed exactly like compulsory redundancy. The first £30,000 of a genuine termination payment, including both statutory and enhanced redundancy pay, is normally free of income tax and National Insurance. Anything paid for notice (PILON), outstanding salary, accrued holiday or bonuses is taxed as normal earnings. How the settlement agreement allocates the total between these buckets directly affects your take-home, which is one reason to have it reviewed. See oursettlement agreement tax guide for the detail.
Can I claim benefits if I take voluntary redundancy?
Usually yes. Volunteering for redundancy is not normally treated as making yourself intentionally unemployed, so it does not usually lead to a benefit sanction the way resigning might. New-style Jobseeker's Allowance depends on your National Insurance record rather than your savings. The important caveat is means-tested support:Universal Credit takes account of your capital, so a large redundancy payment can reduce or pause your entitlement until your savings fall below the thresholds. Because everyone's situation differs, check yours with Citizens Advice or a benefits adviser before you decide.
Should I take voluntary redundancy?
There is no single right answer. Weigh the size of the package against your job prospects, your finances and whether you were thinking of moving on anyway. The table below sets out the usual considerations.
Reasons it can be worth taking
- The enhanced payment is generous and largely tax-free up to £30,000.
- Compulsory redundancies look likely regardless.
- You were already planning a change, retirement or a career move.
- You have another role lined up or strong prospects.
Reasons to be cautious
- The market for your role is slow and re-employment could take time.
- The offer is close to the statutory minimum with little enhancement.
- A large payout could reduce means-tested benefits you rely on.
- You would be giving up valuable benefits, pension accrual or share options.
Been offered a voluntary redundancy package?
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Get a same-day review →Voluntary redundancy: frequently asked questions
What is voluntary redundancy?
Voluntary redundancy is where an employer facing job cuts asks employees to volunteer to leave, usually in return for an enhanced payment. It is still a genuine redundancy: the role disappears. You cannot be forced to take it, and your employer does not have to accept your application. Most voluntary redundancy exits are finalised through a settlement agreement.
How much is voluntary redundancy pay?
Your minimum is statutory redundancy pay, based on age, length of service and weekly pay (capped at £751 for 2026/27). Many employers offer an enhanced package well above this to encourage volunteers, for example a set number of weeks' pay per year of service with no age banding or cap. The enhanced element is where the value, and the room to check the offer is fair, usually sits.
Is voluntary redundancy pay taxable?
The redundancy element is treated the same as compulsory redundancy: the first £30,000 of a genuine termination payment, including statutory and enhanced redundancy pay, is normally free of income tax and National Insurance. Payment in lieu of notice, outstanding salary, holiday pay and bonuses are taxed as normal earnings.
Can I claim benefits if I take voluntary redundancy?
Usually yes. Taking voluntary redundancy is not normally treated as making yourself intentionally unemployed, so it does not usually trigger a benefit sanction. New-style Jobseeker’s Allowance is based on your National Insurance record, not savings. But means-tested benefits like Universal Credit take account of savings, so a large redundancy payment can reduce or remove your entitlement until your capital falls. Check your own position with Citizens Advice or a benefits adviser.
Should I take voluntary redundancy?
It depends on the size of the package, your job prospects, your finances and your appetite for change. Voluntary redundancy can be a good outcome if the enhanced payment is generous, you were considering leaving, or compulsory redundancies look likely anyway. It is worth checking the offer and the settlement agreement before you commit, because the terms and the tax treatment can often be improved.
Disclaimer
This guide provides general information only and is not legal, tax or benefits advice. Your position depends on the specific facts of your case. For advice on your own circumstances, speak to a qualified adviser.
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