How voluntary differs from compulsory
| Feature | Voluntary | Compulsory |
|---|---|---|
| Initiated by | Employee volunteers | Employer selects |
| Package | Often enhanced above statutory | Statutory + any contractual scheme |
| Consultation | Yes but simpler | Full consultation duty |
| Selection criteria | Volunteering itself | Objective selection criteria |
| Unfair dismissal risk | Low (agreed exit) | Higher (procedural fairness) |
Enhanced package structures
Typical voluntary redundancy packages exceed statutory redundancy pay:
- Enhanced multiplier: 2x, 3x or 4x the statutory formula.
- Removal of the £700 weekly pay cap.
- Ex gratia lump sum on top.
- Pension enhancement (funded top-up to protected pension figure).
- Continued private medical insurance for defined period.
- Outplacement support.
Tax treatment
Voluntary redundancy is still redundancy for tax purposes. The first £30,000 of statutory + ex gratia is tax-free under section 401 ITEPA 2003. Enhanced multipliers count toward the £30k. PILON is fully taxable under PENP. Pension routing can be used to shelter portions of the package.
Application process
- Employer announces the voluntary redundancy window with specific eligibility criteria.
- Employees express interest in writing by the deadline.
- Employer confirms or rejects each application (not automatic).
- Formal offer letter with the specific enhanced package.
- Employee has time (typically 21-28 days) to consider and get independent advice.
- Settlement agreement signed.
- Effective date of termination.
Why employers might reject a volunteer
Voluntary redundancy is not automatic. Employers may reject volunteers who hold critical roles or skills the business needs to retain. Reasons include: essential role, unique skill, ongoing project, small team without cover, or business-critical customer relationship.
Should you volunteer?
Considerations:
- The enhanced package versus expected earnings if you stay.
- Job prospects in your market and role.
- Personal financial runway.
- Pension implications (particularly if close to retirement age).
- Health, family and geographic considerations.
- Longer-term career direction.
Take advice from an independent employment law solicitor before signing any settlement paperwork.
Restrictive covenants and reference
Voluntary redundancy usually preserves reference position (you left through redundancy, not resignation). Restrictive covenants continue to apply post-termination. Some settlement agreements negotiate covenant waivers or reductions as part of the package.
Financial planning
The voluntary redundancy lump sum needs management. Use the redundancy runway calculator to model runway, and the redundancy tax estimator for the net figure. For household budgeting and lump-sum management guidance, the sister site PennyWise Finance covers the practical after-redundancy money questions in depth.
Useful calculators
- Redundancy pay calculator
- Redundancy tax estimator
- Redundancy runway calculator
- PILON calculator
- Settlement agreement calculator
Related guides
- Redundancy rights UK
- Redundancy pay tax explained
- Collective redundancy rules
- What is a settlement agreement
- Redundancy consultation timeline
Authority pages
Frequently asked questions
- What is voluntary redundancy?
- The employer invites employees to volunteer for a redundancy exit, usually with an enhanced package above statutory. Volunteering is not resignation - you leave through redundancy and preserve statutory redundancy rights.
- Can my employer reject my volunteer application?
- Yes. Voluntary redundancy is not automatic. Employers may reject volunteers who hold critical roles, unique skills, or business-critical relationships.
- How is voluntary redundancy taxed?
- Same as compulsory. First £30,000 of statutory + ex gratia is tax-free under s.401 ITEPA 2003. Enhanced multipliers count toward the £30k. PILON is fully taxable under PENP.
- Do restrictive covenants apply after voluntary redundancy?
- Yes, unless the settlement agreement specifically waives or reduces them. Some employers negotiate covenant reductions as part of the enhanced package.
- Should I take voluntary redundancy?
- Consider the enhanced package vs expected earnings, job prospects in your market, personal financial runway, pension implications, and longer-term career direction. Take independent legal advice before signing.
Sources and further reading
- ACAS: Redundancy — Voluntary and compulsory redundancy guidance.
- GOV.UK: Making staff redundant — Government guidance.
- Employment Rights Act 1996, Part XI — Statutory redundancy framework.
- ACAS — Free, impartial UK employment advice.
- Employment Rights Act 1996, section 86 — Statutory minimum notice.
General information about UK employment law, not legal advice. For your situation, contact ACAS or an employment-law solicitor.