When an employer opens a voluntary redundancy window, two very different people put their hands up. One has been thinking about leaving for a year and has just been handed a paid exit. The other is anxious about being selected anyway and would rather choose the timing than have it chosen for them.
Those are not the same decision, and they should not be made on the same information. This runs through what volunteering actually changes, what it does not, and the questions worth answering before the deadline. It is general information rather than legal or financial advice, and a decision this size is worth taking proper advice on.
What voluntary Redundancy is
The employer needs to reduce headcount and invites people to come forward rather than running a selection exercise, or as a first stage before one.
Two things follow from that. It is still a redundancy, so it still needs a genuine redundancy situation behind it: the business closing, the site closing, or reduced need for people doing your kind of work. And it is still the employer's decision. Volunteering is an application, not a resignation. They can turn you down, and they frequently do, usually for the people they can least afford to lose.
The money: what you should be offered
A voluntary redundancy package normally has several parts, and it is worth separating them out rather than looking at one headline number.
- Redundancy pay. Statutory as a minimum, and often an enhanced amount on top. Work out the statutory figure yourself first so you know what the enhancement actually is: our worked examples and the calculator will give you it in a couple of minutes.
- Notice pay. Either worked or paid in lieu. This is separate from redundancy pay and should not be blended into it.
- Accrued holiday. Everything you have built up and not taken.
- Anything else in your contract. Bonus, commission, a long-service award, private medical cover to a date.
Voluntary terms are often better than compulsory terms, because the employer is buying willingness. That is exactly why the offer deserves scrutiny rather than gratitude.
How It Is Taxed
The first £30,000 of a genuine redundancy payment is tax free, and statutory redundancy pay sits inside that. Because the statutory maximum is £22,530, the whole statutory element is always covered.
What does not sit inside the £30,000 is notice pay, holiday pay and unpaid wages. Those are taxed as earnings whatever they are called in the offer letter, and the post-employment notice pay rules exist specifically to stop notice pay being relabelled as compensation. Our article on redundancy pay and tax works through this in detail, and it is worth reading before you agree a figure, because the gross number and the number that reaches your account can be a long way apart.
The pension question people skip
For anyone within about ten years of retirement this is often the biggest number in the decision, and it is rarely in the offer letter.
Leaving early means contributions stop, which means a smaller pot or fewer years of accrual. On a defined benefit scheme the effect can be substantial, and there may be specific early retirement or enhancement provisions attached to redundancy that materially change the picture in the other direction.
Ask the scheme administrator directly, in writing, what your position would be if you left on the proposed date. It is a free question and the answer sometimes reverses the decision.
There is also a tax planning angle: paying part of a redundancy payment into a pension can be efficient, though it depends on your annual allowance and your circumstances. That is a conversation for a regulated financial adviser rather than a website.
What you sign away
Voluntary redundancy is usually documented in a settlement agreement, and a settlement agreement is a contract in which you give up your right to bring claims against the employer.
That means unfair dismissal, discrimination, unpaid wages, the lot, subject to the specific wording. Once signed, you cannot come back and argue the redundancy was a sham or the selection was discriminatory.
For a settlement agreement to be binding you must take independent legal advice from a qualified adviser, and the employer nearly always contributes to that cost. Use it properly. Ask the adviser what you would be giving up, whether the sums are right, and whether anything in the agreement is unusual, rather than treating the meeting as a signature ceremony.
Read the restrictive covenants. Non-compete and non-solicitation clauses often reappear in a settlement agreement, sometimes drawn more widely than the original contract. If your plan is to go straight to a competitor or take clients with you, that clause is the whole deal, and it is negotiable.
The things that are easy to miss
A reference. Agree the wording and attach it to the settlement agreement. Chasing one afterwards from a company that has restructured is a well-known frustration.
The leaving date. It affects notice pay, holiday accrual, bonus qualification, pension service and which tax year the payment lands in. A few weeks either way can be worth real money.
Benefits that stop. Private medical cover, life assurance, income protection and season ticket loans all end. Income protection in particular is worth noting if you have a health condition, because replacing that cover individually may be difficult or expensive.
Outplacement support. Often available and often not offered unless asked for.
Benefits after you leave
Redundancy pay is capital rather than income, and capital affects means-tested benefits. For Universal Credit, savings below £6,000 do not affect the award, savings between £6,000 and £16,000 reduce it on a sliding scale, and you cannot usually claim at all with more than £16,000.
New Style Jobseeker's Allowance is based on National Insurance contributions rather than savings, so a redundancy payment does not rule it out, though the payment can affect when it starts.
There is also a question worth asking directly rather than assuming: whether choosing to volunteer affects how a benefit claim is treated compared with being made redundant compulsorily. Put that to Jobcentre Plus or Citizens Advice before the volunteering deadline, not after, because the answer can depend on your circumstances and it is not a detail to discover later.
The questions worth answering honestly
- How long would the money actually last at your real monthly outgoings? Not a guess, an arithmetic answer.
- What does the job market look like for your specific role, in your area, at your level? Not the market generally.
- If you are turned down, will your position at work be worse for having volunteered?
- If you are not selected now, how likely is a compulsory round later, and would the terms be worse?
- Is anything in this decision driven by a manager or a situation that might change anyway?
That last one is worth sitting with. A lot of voluntary redundancy applications are really about wanting to leave a particular manager, and a restructure often moves managers around anyway.
Timing and Pressure
Voluntary windows are usually short, and the pressure is real. Two things to hold on to.
You are entitled to a reasonable period to consider a settlement agreement and to take the independent advice the law requires. An employer pressing for a signature the same afternoon is not following good practice, and Acas guidance suggests a proper period to consider such an offer.
And an offer that is genuinely good is still good tomorrow. If you are being told it will be withdrawn unless you sign immediately, that is worth asking your legal adviser about rather than reacting to.
If you are turned down
It happens, and it is not personal in the way it feels. Employers refuse volunteers with scarce skills, in critical roles, or where too many people in one team have come forward.
You keep every right you had. If a compulsory selection follows, you are entitled to fair and objective criteria, to see your own scores and to challenge them, and to be considered for suitable alternative work. Having volunteered does not weaken any of that, and it does not mark you as expendable in any way that carries legal weight.