Voluntary Redundancy [Employee Guide]

Voluntary redundancy can be a major turning point in your career and financial life. For some employees, it presents an opportunity to leave a role with economic security and the freedom to pursue something new. For others, it can be a source of stress and uncertainty.

Understanding how voluntary redundancy works can make the process far less overwhelming. This guide will take you through everything you need to know, including what voluntary redundancy means, the process, your rights and more.

What is voluntary redundancy?

Voluntary redundancy is when your employer invites employees to step forward and leave their job as part of a redundancy programme. Instead of the employer unilaterally selecting who could be made redundant, employees have the option to apply.

If accepted for voluntary redundancy, you agree to leave your role. In return, you receive a redundancy package, often more generous than the statutory minimum.

The difference between voluntary and compulsory redundancy

Although both types of redundancy result in an employee leaving the company, there are clear distinctions:

• Voluntary redundancy: You put yourself forward, the employer decides whether to accept, and you typically receive an enhanced payment.
• Compulsory redundancy: The employer decides who is leaving, usually after a consultation and selection process, and the payout may be statutory only (although enhanced payments are offered in some cases).

Employers typically use voluntary redundancy as a way of reducing headcount in a more cooperative and less confrontational way than the compulsory redundancy process.

Why a company might offer voluntary redundancy

Employers rarely make staff redundant without good reason. Below are some of the most common reasons why a company might offer voluntary redundancy.

In such situations, employers often prefer voluntary redundancy over compulsory redundancy because it reduces tension, limits legal risk, and demonstrates to staff that they are being treated fairly.

Why employers may prefer voluntary redundancy

Managing redundancies is rarely straightforward for any business, but from an employer’s perspective, voluntary redundancy can bring several important benefits:

• Avoids disputes: Encourages employees to leave on mutually agreed-upon terms, thereby reducing the risk of grievances or claims.
• Protects morale: Helps protect the morale of remaining staff by avoiding mass compulsory redundancies.
• Maintains reputation: Demonstrates fairness and compassion, which can strengthen the company’s reputation among staff, customers, and the broader industry.
• Supports transition: Creates space for new hires with different skills who may be better suited to the company’s future direction.

While voluntary redundancy has clear advantages, there are times when an employer may prefer to use statutory redundancy instead. This is usually because:

• The business needs to retain tight control over which roles are removed, rather than relying on who volunteers
• Employers want to avoid losing their most skilled or experienced employees, who may be more likely to volunteer as they stand to gain most from redundancy payments and feel confident about finding new opportunities
• The company must ensure a fair and consistent selection process, particularly where legal obligations apply (for example, collective consultation).

When voluntary applications aren’t enough

Even when a voluntary redundancy scheme is offered, there’s no guarantee that enough employees will choose to apply. If the number of volunteers falls short of the business’s target, the employer may still need to move ahead with compulsory redundancies to meet cost-saving or restructuring goals.

This uncertainty is one of the reasons many employees decide to accept voluntary redundancy. They prefer to leave on agreed terms with a guaranteed package, rather than face the possibility of being selected later for compulsory redundancy under less favourable circumstances.

How does voluntary redundancy work?

The voluntary redundancy process can vary depending on the company’s size and the reasons behind the redundancy programme. However, most schemes follow a broadly similar pathway.

Typical steps in the voluntary redundancy process

1. Announcement of redundancy programme: The employer notifies staff that redundancies are needed and explains why.
2. Invitation for applications: Employees are invited to apply if they are interested. This is typically done by submitting a voluntary redundancy letter, which confirms your interest in leaving.
3. Review by employer: Employers assess the applications. They may not be able to accept everyone who applies. For example, if too many staff from one department apply, the business may decline some requests to retain essential skills.
4. Decision and agreement: If your application is accepted, you’ll be provided with a settlement agreement. This document sets out your voluntary redundancy pay, notice period, and any other terms. You must get this agreement reviewed and signed by a solicitor.
5. Leaving the company: Once the paperwork is signed, you’ll work your notice period (unless agreed otherwise) and then officially leave.

If your application for voluntary redundancy is accepted, you must take independent legal advice before signing a settlement agreement. At GTE Settlement Agreements, our specialist team can review and sign off your agreement on the same day.

Voluntary redundancy rules

While each employer has their own process, there are some general voluntary redundancy rules to be aware of. We’ve set out the main voluntary redundancy rules for you below:

• Eligibility: Not all employees may be eligible. Some employers limit voluntary redundancy to specific teams or grades.
• Employer discretion: Submitting an application does not guarantee automatic acceptance. Employers can lawfully decline applications if accepting them would leave the business without essential skills or staffing levels.
• Fair and consistent decision-making: Employers should use clear, objective criteria to decide which applications to accept and which to refuse.
• Avoid discrimination: Accepting or rejecting applications based on protected characteristics (such as age, gender, or disability) could leave them open to claims.
• Consultation obligations: Employers must follow a fair redundancy consultation process. And where 20 or more redundancies are proposed within 90 days at one establishment, collective redundancy consultation rules apply.
• Clear communication: Employers should explain why some applications are accepted and others are not, to maintain transparency and reduce the risk of grievances.
• Voluntary redundancy pay: By law, you must receive at least statutory redundancy pay if you qualify. However, most voluntary schemes offer enhanced payments to encourage applications.
• Settlement agreements: You’ll be required to sign a legal settlement agreement confirming you accept the terms of the voluntary redundancy. By signing, you waive your right to bring most future claims against your employer, which is why the law requires you to have the agreement reviewed and signed off by an independent solicitor.

Your rights during the voluntary redundancy process

When you are going through voluntary redundancy, you retain certain rights. These protections are designed to give you space to plan your future and ensure the process is fair.

Your voluntary redundancy rights include:

• Time off to look for work: If you have at least two years’ continuous service, you are entitled to reasonable paid time off during your notice period to attend interviews, training, or other job search activities.
• Notice period rights: You must either work your notice, be placed on garden leave, or receive payment in lieu of notice (PILON). Your employer cannot cut short your notice without pay.
• Holiday entitlement: You remain entitled to any accrued but unused holiday. This can usually be taken during your notice period or paid out as part of your final settlement.
• Fair treatment at work: You should not be treated less favourably, excluded, or pressured once you’ve applied for voluntary redundancy. You remain an employee with the same workplace rights until your last day.

Applying for voluntary redundancy letter

If you decide you want to put yourself forward for voluntary redundancy, the next step is to submit an application for a voluntary redundancy letter. This letter is your formal expression of interest and gives your employer something in writing to consider during the process.

The letter doesn’t need to be complicated or overly detailed. It simply needs to confirm that you are volunteering for redundancy and that you’d like to be considered for any scheme being offered. Employers may provide a template or form, but if not, you can draft your own.

Submitting the letter does not guarantee acceptance – it’s an application, not a confirmation. If your application is accepted, the terms will be set out formally in a settlement agreement.

What to include in a voluntary redundancy letter

Writing a voluntary redundancy letter is often the first practical step in the voluntary redundancy process, so it’s worth taking the time to make it clear and professional. If a template is not already provided, you should include:

• A clear statement that you are volunteering for redundancy
• Your full name, job title, and department
• A request to be considered under the terms of the current voluntary redundancy scheme
• An acknowledgement that you understand acceptance is at the employer’s discretion
• A polite and professional closing.

Voluntary redundancy pay

Voluntary redundancy pay is one of the most significant factors in deciding whether to apply. Employers usually offer more than the statutory minimum to make the option attractive.

How statutory redundancy pay works

Your statutory redundancy payment is calculated using a government-set formula:

• 0.5 week’s pay for each full year of service under age 22
• 1 week’s pay for each full year of service, aged 22 or older (but under 41)
• 1.5 weeks’ pay for each full year of service, aged 41 and over.

The formula looks at your age in each full year of service, not just your age at dismissal. Statutory redundancy pay has a maximum weekly cap. Therefore, if you earn above the weekly limit, the capped figure applies. There is also a 20-year service limit.

If you were made redundant on or after 6 April 2025, the weekly pay cap is £719 and the maximum statutory redundancy payment is £21,570. These figures will be updated in April 2026.

You can calculate your redundancy pay on the government website.

How voluntary redundancy pay is different

In voluntary redundancy situations, employers often pay above the statutory amounts. For example, they may double the statutory entitlement or offer a set number of weeks’ pay per year of service. Some employers may include additional elements such as ex gratia payments (goodwill sums made at the employer’s discretion, to encourage employees to accept the package).

Enhanced voluntary redundancy pay is a key reason many employees choose to take it rather than risk compulsory redundancy later.

Redundancy pay and tax

Statutory redundancy pay is tax-free up to £30,000, and because of the weekly pay and service caps, most employees receive their full statutory entitlement without any tax deductions.

However, any amount above £30,000 will be taxed at your normal rate of income tax. In addition, other payments (such as notice pay, bonuses, or accrued holiday pay) are taxable in the usual way.

If you are offered an enhanced package in return for voluntary redundancy, you must understand the tax implications.

Notice and voluntary redundancy

When you take voluntary redundancy, you are still entitled to receive notice of your termination — just as you would if your employment were ending in any other way. The length of your notice period will depend on your employment contract and the statutory minimum requirements.

Statutory notice periods

The minimum notice period you should receive is:

• At least one week’s notice if you have been employed between one month and two years
• One week’s notice for each complete year of service, up to a maximum of 12 weeks.

Your contract may provide for a more extended notice period, and if so, that usually applies.

Voluntary redundancy notice periods

Many voluntary redundancy packages include specific arrangements for notice. So, rather than working your notice period as usual, you might be offered:

• Garden leave, where you remain employed and paid during notice but are not required to work
• Payment in lieu of notice (PILON), where your employer pays you instead of requiring you to work your notice. If you receive PILON, it is taxed as earnings.

Notice arrangements are an essential part of the voluntary redundancy process, so make sure you understand what has been agreed before signing any settlement agreement.

Pros and cons of taking voluntary redundancy

Deciding whether to accept voluntary redundancy is rarely a straightforward decision. It can open doors, but it also carries risks. As such, you should always consider your long-term plans carefully, not just the short-term financial offer.

Advantages of voluntary redundancy

Choosing voluntary redundancy can bring several positive outcomes, particularly if you are already considering a career change.

For many employees, the financial package and the opportunity to leave on their own terms provide the security and flexibility needed to take the next step with confidence.

• Financial benefit: You may receive a larger payout than compulsory redundancy.
• Control: You choose to apply rather than being selected.
• Career opportunities: A redundancy payout could fund training, starting a business, or pursuing a new career.
• Amicable exit: Leaving voluntarily often helps preserve positive relations with your employer.

Disadvantages of voluntary redundancy

Voluntary redundancy is not without its challenges. Leaving the certainty of your current role can create financial and personal pressures; it’s essential to weigh these carefully before making a decision.

• Job uncertainty: You may not find new work quickly, especially in specialised sectors.
• Loss of benefits: Leaving may result in the loss of valuable benefits, such as pension contributions, private healthcare, or staff discounts. Review your scheme rules to understand what happens when your employment ends.
• Impact on future rights: Once you sign a settlement agreement, you give up the right to bring most employment claims.
• Timing: You may not be financially ready to stop working, even with a payout.

Voluntary redundancy and settlement agreements

If your application for voluntary redundancy is accepted, your employer will usually require you to sign a settlement agreement. This is a legally binding contract that confirms the terms of your departure, including your voluntary redundancy pay, notice period, and any additional benefits you’ll receive.

In exchange for the agreed package, you formally waive your right to bring future employment claims against the company.

By law, you must take independent legal advice before signing a settlement agreement

Your employer will typically pay the cost of this advice, meaning the process is free for you.

Key points to know about settlement agreements:

• They confirm the full terms of your voluntary redundancy, including any ex gratia payments offered
• They give both you and your employer certainty
• They protect both you and your employer by avoiding future disputes
• You cannot sign one without receiving independent legal advice
• Employers almost always cover the legal fees for this advice.

For many employees, signing the settlement agreement is the final step in the voluntary redundancy process.

FAQ’s about voluntary redundancy

Many employees have the same questions about voluntary redundancy. Here we’ve set out the answers clearly.

Contact GTE Settlement Agreements today

Voluntary redundancy can offer a fresh start with financial support, but it’s not a decision to be rushed into. Always balance the immediate benefits of voluntary redundancy pay with the longer-term consequences for your career, finances, and personal life.

If you are offered a voluntary redundancy settlement agreement, we provide:

• Same-day legal advice and sign-off
• A straightforward, supportive process
• Reassurance that your agreement is fair and legally sound
• No cost to you (your employer covers our legal fees)

With our nationwide service, you can move forward with confidence. Call today for your free consultation on 020 7247 7190 or complete the simple enquiry form on this page.