Severance Pay Calculator

Is severance pay taxable?

In most countries, statutory severance pay is taxable as ordinary income and subject to income tax at your marginal rate. The UK is an important exception: the first £30,000 of redundancy pay is completely tax-free, with amounts above that threshold taxed as income. In India, gratuity received from a private-sector employer is exempt up to ₹20 lakh for employees covered under the Payment of Gratuity Act. Always consult a tax advisor for your specific situation, as the tax treatment can depend on how the payment is structured and documented.

What is the difference between severance pay and redundancy pay?

The terms are often used interchangeably but have different connotations by country. Redundancy pay is the UK and Australian term for statutory compensation paid when a role is eliminated due to business restructuring or downsizing. Severance pay is the broader US and Canadian term, which may be entirely contractual rather than statutory — the US has no federal statutory requirement. In India, gratuity is a distinct concept: a retirement-style benefit triggered by five or more years of continuous service, calculated using the (15/26) × salary × years formula rather than a fixed weeks-per-year formula.

Does the UK weekly pay cap change each year?

Yes. The UK government reviews the statutory weekly pay cap for redundancy purposes annually, typically in April each year. The 2024/25 cap is £643 per week, meaning any weekly earnings above this figure are disregarded in the calculation. This cap affects higher earners more significantly — an employee earning £1,000/week is treated as earning £643/week for redundancy purposes. Always check GOV.UK for the current year's figure if you are calculating redundancy pay after April 2025, as the cap generally increases each year in line with inflation.

Can I negotiate a higher severance payment than the statutory minimum?

Yes, and this is common especially for more senior employees or in larger organisations. The statutory minimum is a legal floor — your employer can voluntarily offer more. Factors that strengthen your negotiating position include a strong employment record, length of service, the circumstances of the redundancy (such as short notice or a surprise announcement), and the availability of legal representation. In the US, where there is no statutory requirement, negotiation is the only mechanism to obtain any severance at all. Enhanced severance may come with conditions such as signing a settlement agreement and waiving employment tribunal rights.