How Redundancy Affects Bonuses

For many employees in the UK, bonus payments form a meaningful part of overall pay. Some are paid monthly, others quarterly or annually. They may be based on clear performance measures, such as sales targets or company profits, or they may be discretionary, with the employer deciding the amount and timing. When redundancy enters the picture, bonuses raise practical questions: do they count towards your redundancy pay, what happens to a bonus you have earned but not yet been paid, and can you still expect a discretionary bonus once your role has been put at risk?

This article looks at how bonuses are usually treated in a redundancy situation under current UK practice. Every employment contract is different, so the wording of your contract and bonus scheme rules will often be the starting point.

Bonuses and statutory redundancy pay

Statutory redundancy pay is calculated using three things: your age, your length of continuous service, and your gross weekly pay, subject to a statutory weekly cap. The current cap and the way length of service is counted are set out on GOV.UK, with figures usually reviewed each April.

If your pay varies from week to week, for example because you receive commission or regular performance bonuses, your weekly pay is generally worked out by taking your average weekly earnings over the 12 weeks before the week in which you were given notice. In most cases this means that regular bonus and commission payments are included in the calculation, because they form part of the gross pay you actually received in those weeks.

If you have fixed normal working hours and a fixed basic salary but also receive occasional bonuses, the position depends on how those bonuses are described in your contract. Payments that are genuinely contractual and linked to the work done are usually included. Purely discretionary one-off payments may be treated differently. If you are unsure, check your contract and ask your employer to show how they have arrived at your weekly pay figure.

You can get a rough idea of your basic entitlement using our free Redundancy Pay Calculator, but bear in mind that the calculator works from your weekly pay figure, so the way bonuses are factored in will affect the result.

Annual and long-term bonuses

Annual bonuses sit awkwardly with a 12-week reference period. If you happen to be made redundant just after an annual bonus is paid, it could distort the average. If you leave just before the bonus would have been paid, it might be left out entirely. There is no single rule that fits every case.

In practice, employers and tribunals often look at what the bonus is really for. A bonus that rewards work done across a full year may be apportioned, so you receive the part that relates to the period you actually worked. A bonus conditional on being employed on a specific payment date is harder to claim once you have left, although tribunals have sometimes looked behind the wording to see whether the condition operates fairly. In one well-known line of cases, courts have held that an employer cannot use the dismissal itself to defeat a bonus the employee would otherwise have earned.

If your scheme rules say that leavers due to redundancy are treated as good leavers, you may be entitled to a pro rata payment even though you are no longer employed when the bonus is paid out.

Redundancy Pay Calculator

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Discretionary bonuses

The word "discretionary" does not usually give an employer a completely free hand. UK case law has established that discretion in bonus decisions should be exercised rationally and in good faith, and not in a way that is arbitrary, capricious or perverse. An employer who refuses a bonus simply because an employee is being made redundant, when colleagues doing similar work received one, may be open to challenge, though outcomes still turn on the facts of each case.

Proving that a discretionary bonus has been wrongly withheld can be difficult, particularly where the criteria are vague. If you believe you have been treated unfairly, it helps to gather evidence of past awards, the criteria that have been applied, and how others in similar positions have been treated.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Bonuses earned, notice pay and tax

If you have already met the conditions for a bonus before your employment ends, you may be entitled to be paid it as part of your final settlement, even if the usual payment date falls after your leaving date. Where a bonus is paid in shares, share options or under a long-term incentive plan, the position can be more complex. These schemes often have their own leaver provisions, distinguishing between good leavers and bad leavers. Redundancy is commonly treated as good leaver status, which may preserve some or all of your entitlement, but this depends on the specific scheme documents.

During your notice period, you are generally entitled to your normal pay, including any bonus or commission you would have earned. If you are placed on garden leave, the same usually applies. Where you receive a payment in lieu of notice, the calculation should reflect what you would have received during the notice period, though the exact treatment will depend on your contract.

On tax, bonuses paid through payroll are taxed as normal earnings and are subject to income tax and National Insurance, whether the bonus is paid before you leave or as part of a final settlement. The tax treatment of redundancy payments themselves works differently, and current thresholds are set out on GOV.UK.

Practical steps

• Read your contract and any bonus or incentive scheme rules carefully, paying attention to leaver provisions.
• Ask your employer for a written breakdown of how your weekly pay and any final bonus payment have been calculated.
• Keep copies of past bonus statements and payslips, which can help if a dispute arises.
• If you think a bonus has been wrongly withheld, raise it through the grievance procedure before your employment ends.
• Consider getting advice from ACAS, Citizens Advice or an employment solicitor if matters cannot be resolved internally.

For many people facing redundancy, the bonus element is where the largest gap between what is offered and what is owed tends to appear. Working through the figures carefully, and asking the right questions early, often makes the difference between accepting a rough estimate and securing the full amount due.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Redundancy Pay Calculator lets you find out how much statutory redundancy pay you could be entitled to. Enter your details and get an estimate in less than a minute. Try it now →