{"id":38407,"date":"2021-02-17T20:16:41","date_gmt":"2021-02-17T18:16:41","guid":{"rendered":"https:\/\/factorialhr.com\/blog\/?p=38407"},"modified":"2026-03-31T10:58:53","modified_gmt":"2026-03-31T08:58:53","slug":"severance-pay","status":"publish","type":"post","link":"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/","title":{"rendered":"Severance Pay: How Does It Work and Who Is Entitled to It"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Let\u2019s start with the most common question: <\/span><b>is severance pay the same as redundancy pay?<\/b><span style=\"font-weight: 400;\">\u00a0 In some ways, yes. Both are a <\/span><b>form of financial settlement for departing employees.<\/b><span style=\"font-weight: 400;\"> But there is <\/span><b>a distinction between the two <\/b><span style=\"font-weight: 400;\">and, as an employer, it is important that you understand this. This will help ensure smooth operations, happy employees and legal compliance.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this post, we will define severance pay and redundancy pay, the differences between them, who is entitled and how it works. We will also discuss some of the laws surrounding severance payment packages in the UK, and how to calculate an employee\u2019s severance pay.<\/span><\/p>\n<div class=\"factorial-newsletter-widget\"><div class='fac-newsletter-banner ' id=\"newsletter-section\">\n  <div class='fac-newsletter-banner__content'>\n    <div class=\"fac-newsletter-banner_heading-container\">\n      <h4 class='fac-newsletter-banner__title'>Get insights into the workplace and the resources to help you thrive in it<\/h4>    <\/div>\n    <form class=\"fac-newsletter-banner__form\">\n      <div class=\"fac-newsletter-banner__input-button-container\">\n        <label for=\"newsletter-input\" class=\"fac-newsletter-banner__container\">\n          <div class=\"fac-newsletter-banner__input-wrapper\">\n            <div class=\"fac-newsletter-banner__icon\">\n              <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"24\" height=\"24\" viewBox=\"0 0 24 24\" class=\"fac-newsletter-banner__icon-svg\">\n                <path d=\"M4 8a2 2 0 0 1 2-2h12a2 2 0 0 1 2 2v8a2 2 0 0 1-2 2H6a2 2 0 0 1-2-2V8Zm12.586 0H7.414l3.879 3.879a1 1 0 0 0 1.414 0L16.586 8ZM6 9.414V16h12V9.414l-3.879 3.879a3 3 0 0 1-4.242 0L6 9.414Z\"><\/path>\n              <\/svg>\n            <\/div>\n            <input id=\"newsletter-input\" class=\"fac-newsletter-banner__input\" type=\"email\" required name=\"api_qualification_entry[contact_email]\" placeholder=\"What\u2019s your email?\">\n            <input\n              type=\"hidden\"\n              name=\"api_qualification_entry[subscribed_to_factorial_newsletter]\"\n              value=\"true\" \/>\n            <input type=\"hidden\" name=\"api_qualification_entry[gdpr_tos]\" value=\"true\" \/>\n            <input type=\"hidden\" name=\"api_qualification_entry[iso_country]\" value=\"gb\" \/>\n            <input type=\"hidden\" name=\"locale\" value=\"en-GB\" \/>\n            <input type=\"hidden\" name=\"api_qualification_entry[marketing_form_campaign]\" value=\"blog_newsletter\" \/>\n          <\/div>\n          <div class=\"fac-newsletter-banner__button-wrapper fac-newsletter-banner__button-wrapper--desktop\">\n            <button type=\"submit\" class=\"fac-newsletter-banner__button\">\n              <span>Subscribe<\/span>\n            <\/button>\n          <\/div>\n        <\/label>\n        <div class=\"fac-newsletter-banner__button-wrapper fac-newsletter-banner__button-wrapper--mobile\">\n          <button type=\"submit\" class=\"fac-newsletter-banner__button\">\n            <span>Subscribe<\/span>\n          <\/button>\n        <\/div>\n      <\/div>\n      <p class='fac-newsletter-banner__consent'>\n        By entering your email and clicking &quot;Subscribe&quot;, you agree to receive newsletters and marketing emails from EVERYDAY SOFTWARE, S.L. (Factorial). See our <a href='\/privacy-policy'>Privacy Policy<\/a> for details on data use, GDPR rights, and how to withdraw consent.      <\/p>\n    <\/form>\n  <\/div>\n  <div class='fac-newsletter-banner_feedback fac-newsletter-banner-is-hidden'>\n    <h4 class='fac-newsletter-banner_feedback__title'>Subscription Confirmed!<\/h4>    <p class='fac-newsletter-banner_feedback__subtitle'>Stay tuned! From now on, you will receive the latest news in your inbox!<\/p>\n  <\/div>\n  <div class='fac-newsletter-banner_error fac-newsletter-banner-is-hidden'>\n    <p class='text-sm text-red-600'>Something went wrong. Please try again.<\/p>\n  <\/div>\n<\/div>\n\n\n<script>\n  {\n    let eventCategory = \"newsletter-banner\"\n    let formNewsletter = document.querySelector(\".fac-newsletter-banner__form\");\n    let newsletterContainer = formNewsletter.closest(\".fac-newsletter-banner__content\");\n    let feedbackNewsletter = document.querySelector(\".fac-newsletter-banner_feedback\");\n    let errorNewsletter = document.querySelector(\".fac-newsletter-banner_error\");\n    let marketingFormCampaign = formNewsletter.querySelector(\n      'input[name=\"api_qualification_entry[marketing_form_campaign]\"]'\n    ).value\n    const submitButton = formNewsletter.querySelector(\"button[type='submit']\");\n\n    if (formNewsletter) {\n      const callback = (entries, observer) => {\n        entries.forEach((entry) => {\n          if (entry.isIntersecting) {\n            window.GoogleAnalytics.trackEvent({\n              action: 'viewed_newsletter_form',\n              category: eventCategory,\n              label: marketingFormCampaign,\n              isoCode: \"gb\"\n            })\n          }\n        });\n      };\n      const observer = new IntersectionObserver(callback, {});\n      observer.observe(document.querySelector(\".fac-newsletter-banner\"));\n\n      formNewsletter.onsubmit = (e) => {\n        if (formNewsletter.checkValidity()) {\n          e.preventDefault();\n          submitButton.disabled = true\n\n          window.onSubscribeNewsletter({\n            onSuccess: () => {\n              newsletterContainer.classList.add('fac-newsletter-banner-is-hidden');\n              feedbackNewsletter.classList.add('fac-newsletter-banner-is-visible');\n              errorNewsletter.classList.remove('fac-newsletter-banner-is-visible');\n              errorNewsletter.classList.add('fac-newsletter-banner-is-hidden');\n            },\n            onError: (e) => {\n              console.error(\"error\", e);\n              errorNewsletter.classList.remove('fac-newsletter-banner-is-hidden');\n              errorNewsletter.classList.add('fac-newsletter-banner-is-visible');\n              submitButton.disabled = false;\n            },\n            eventCategory\n          })(e);\n        }\n      };\n    }\n  }\n<\/script>\n\n<\/div>\n<h2><a id=\"whatisseverance\"><\/a> What is Severance Pay UK?<\/h2>\n<p><b>Severance pay is a form of compensation paid to an employee on the early and unwilling termination of their contract.<\/b><span style=\"font-weight: 400;\"> It applies when an employee is dismissed through no fault of their own. For example, if they have been removed from a position due to company restructuring or if their employment is \u201csevered\u201d.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A severance payment isn\u2019t a legal requirement in the UK, so companies that offer it gain a competitive advantage. Through their willingness to provide safety to their employees, they will <\/span><b>attract and retain more talent <\/b><span style=\"font-weight: 400;\">in comparison to those who don\u2019t pay severance packages. Furthermore, severance agreements also protect you against potential lawsuits relating to dismissal.<\/span><\/p>\n<h2><a id=\"isseverancepaythesame\"><\/a>What is the Difference Between Severance and Redundancy?<\/h2>\n<p><span style=\"font-weight: 400;\">Severance pay and redundancy pay in the UK are <em>both<\/em> financial settlements for employees; however, for <em>different<\/em> purposes. There are times where redundancy payments and severance payments can often mean the same thing, but there are situations where that\u2019s <em>not<\/em> the case. <strong>Severance pay is offered to an employee at the end of their employment<\/strong> as part of their severance package. It is a privately agreed upon amount between an employee and employer. It often includes an augmented amount to take into consideration their bonuses or shares.<\/span><\/p>\n<p>On the other hand,<strong> Legal <\/strong><b>Redundancy Pay in the UK is a basic amount that you must pay an employee if you make them redundant.<\/b><span style=\"font-weight: 400;\"> This amount is dictated by the law and is not a negotiated amount between employer and employee. According to the <\/span><a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/1996\/18\/contents\"><span style=\"font-weight: 400;\">Employment Rights Act 1996<\/span><\/a><span style=\"font-weight: 400;\">, an employee is entitled to <\/span><a href=\"https:\/\/factorialhr.co.uk\/blog\/handling-redundancies-best-practices-for-hr\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">redundancy pay<\/span><\/a><span style=\"font-weight: 400;\"> on dismissal when:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">their <\/span><b>position no longer exists<\/b><span style=\"font-weight: 400;\"> within the company (due to restructuring or downsizing);<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">their <\/span><b>role is no longer required<\/b><span style=\"font-weight: 400;\"> at their place of work (due to outsourcing or relocation of operations); or<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">the<b> duties undertaken by an employee are no longer required<\/b> by the company (due to changes in business needs).<\/li>\n<\/ul>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-98757\" src=\"https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/11173059\/pexels-anna-shvets-5325104_11zon-1024x683.jpg\" alt=\"what is severance pay and how does severance pay work\" width=\"662\" height=\"441\" srcset=\"https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/11173059\/pexels-anna-shvets-5325104_11zon-1024x683.jpg 1024w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/11173059\/pexels-anna-shvets-5325104_11zon-300x200.jpg 300w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/11173059\/pexels-anna-shvets-5325104_11zon-768x512.jpg 768w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/11173059\/pexels-anna-shvets-5325104_11zon-1536x1024.jpg 1536w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/11173059\/pexels-anna-shvets-5325104_11zon-2048x1365.jpg 2048w\" sizes=\"(max-width: 662px) 100vw, 662px\" \/><\/p>\n<h2><a id=\"standardredundancy\"><\/a>Standard Redundancy Pay UK: What is it?<\/h2>\n<p><a href=\"https:\/\/www.gov.uk\/staff-redundant\/redundancy-pay\"><span style=\"font-weight: 400;\">Statutory redundancy payments<\/span><\/a><span style=\"font-weight: 400;\"> depend on an employee\u2019s contract and length of service, as well as the reasons for dismissal.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A <\/span><b>severance payment can be a larger package, <\/b><span style=\"font-weight: 400;\">including redundancy pay and any other employee payments, such as benefits and bonuses. <\/span><b>Redundancy pay<\/b><b> is regulated by law<\/b><span style=\"font-weight: 400;\">, but it\u2019s up to you to <\/span><b>negotiate severance packages<\/b><span style=\"font-weight: 400;\"> within your employment contracts.<\/span><\/p>\n<div class=\"factorial-banner inline-banner banner-freebie category-hr-tips\"\n    data-banner-id=\"170487\"\n    data-banner-type=\"freebie\"\n    data-category=\"HR Tips\">\n    <div class=\"banner-content\">\n        <div class=\"banner-text\">\n                            <h4>Download your free offboarding checklist now<\/h4>\n            \n                            <ul class=\"banner-checklist\">\n                                                                        <li class=\"not-prose\">Key steps for smooth, compliant exits<\/li>\n                                                                                                <li class=\"not-prose\">Knowledge transfer &amp; company asset return<\/li>\n                                                                                                <li class=\"not-prose\">Exit interview for a final fareware<\/li>\n                                                            <\/ul>\n            \n                            <a href=\"https:\/\/factorialhr.co.uk\/templates\/employee-offboarding-checklist\"\n                    class=\"factorial-cta-button not-prose freebie\" data-cta=\"freebie\" data-cta-position=\"inline-banner\">\n                    Download for free                <\/a>\n                    <\/div>\n\n        <div class=\"banner-image has-image\">\n            <img decoding=\"async\" src=\"https:\/\/factorialhr.com\/wp-content\/uploads\/2025\/10\/14100624\/template-static-banner.png\" class=\"not-prose\" \/>\n        <\/div>\n    <\/div>\n<\/div>\n<h2><b><a id=\"UK\"><\/a>UK Redundancy Pay Package Entitlement<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">As an employer, when you make an employee redundant due to changes in the business (restructuring, relocating or downsizing) there are a number of things you need to consider in order to work out how the redundancy payment is calculated.\u00a0<\/span><\/p>\n<h3>1. Proof that services are no longer needed<\/h3>\n<p><span style=\"font-weight: 400;\">As an employer, <\/span><b>you can only make an employee redundant if you can prove that their services are no longer required by the company. <\/b><span style=\"font-weight: 400;\">If you dismiss an employee due to misconduct or performance issues then they are <em>not<\/em> eligible for even the minimum redundancy pay.<\/span><\/p>\n<h3>2. Is your employee&#8217;s redundancy compulsory or non-compulsory?<\/h3>\n<p><span style=\"font-weight: 400;\">The next thing to consider is <\/span><b>whether the redundancy is <\/b><a href=\"https:\/\/www.gov.uk\/staff-redundant\/compulsory-redundancy\"><b>compulsory<\/b><\/a><b> or <\/b><a href=\"https:\/\/www.gov.uk\/staff-redundant\/noncompulsory-redundancy\"><b>non-compulsory<\/b><\/a><span style=\"font-weight: 400;\">. With compulsory redundancy, you must follow fair selection criteria and ensure you don\u2019t discriminate. You must <\/span><b>follow \u201ccollective consultation\u201d rules if you\u2019re making 20 or more<\/b> <b>employees redundant <\/b><span style=\"font-weight: 400;\">within any 90-day period at a single establishment. If you don\u2019t, an employment tribunal could decide that you\u2019ve dismissed your staff unfairly.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you dismiss an employee on the grounds of <span style=\"text-decoration: underline;\">business changes<\/span> then <strong>you must pay them a redundancy settlement<\/strong> if they have been with the company for a minimum of two years. You must also pay them for all accrued wages and holidays, payments in lieu of notice where appropriate, and any negotiated bonuses.<\/span><\/p>\n<p><img decoding=\"async\" class=\"wp-image-69970 aligncenter\" src=\"https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/25122720\/imgonline-com-ua-CompressToSize-jItwhJBoKD-1024x566.jpg\" alt=\"Severance payment\" width=\"617\" height=\"341\" srcset=\"https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/25122720\/imgonline-com-ua-CompressToSize-jItwhJBoKD-1024x566.jpg 1024w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/25122720\/imgonline-com-ua-CompressToSize-jItwhJBoKD-300x166.jpg 300w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/25122720\/imgonline-com-ua-CompressToSize-jItwhJBoKD-768x425.jpg 768w, https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/25122720\/imgonline-com-ua-CompressToSize-jItwhJBoKD.jpg 1428w\" sizes=\"(max-width: 617px) 100vw, 617px\" \/><\/p>\n<h3>3. Implement Severance Pay Policy<\/h3>\n<p><span style=\"font-weight: 400;\">As an employer, you should have a clear policy in place for how sev<\/span><span style=\"font-weight: 400;\">erance pay is managed in your company. Although there are no legal requirements<\/span><b>, your severance policy will depend on your own employment contract. <\/b><span style=\"font-weight: 400;\">It should, however, clearly outline your <\/span><a href=\"https:\/\/www.gov.uk\/redundancy-your-rights\/redundancy-pay#:~:text=You'll%20normally%20be%20entitled,or%20older%2C%20but%20under%2041\"><span style=\"font-weight: 400;\">employee\u2019s rights regarding severance pay<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you decide to offer an employee a voluntary severance package then you need to make sure they<\/span><b> sign a voluntary severance agreement.<\/b><span style=\"font-weight: 400;\"> This will protect you from claims of unfair dismissal. You might also want to consider including a confidentiality clause in your severance agreement template so that departing employees don\u2019t disclose the terms of their severance package.<\/span><\/p>\n<h2><a id=\"howmuchis\"><\/a><strong>How Much is Redundancy Pay?<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">When it comes to redundancy pay, the <a href=\"https:\/\/www.gov.uk\/redundancy-your-rights\/redundancy-pay\">UK law<\/a> is clear. If you make an employee redundant,<\/span><b> you must pay them a statutory redundancy settlement if they have been with you for at least 2 years.\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The amount of pay they are entitled to will <\/span><b>depend on their length of service<\/b><span style=\"font-weight: 400;\"> (capped at 20 years) and age:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">21 and under \u2013 0.5 week\u2019s pay for each full year of service<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">22 to 40 \u2013 one week\u2019s pay for each full year of service<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">41 and above \u2013 1.5 week\u2019s pay for each full year of service<\/span><\/li>\n<\/ul>\n<p>Severance pay is <strong>capped at \u00a3719 per week<\/strong>, with the maximum statutory redundancy payment set at <strong>\u00a321,570.<\/strong> Employees made redundant before 6 April 2025 may, however, be entitled to a lower amount.<\/p>\n<p>\ud83d\udccc <em><strong>Need to calculate your employees redundancy payment?<\/strong><\/em> <strong>Check out our <a href=\"https:\/\/factorialhr.co.uk\/blog\/handling-redundancies-best-practices-for-hr\/\" target=\"_blank\" rel=\"noopener\">Statutory Redundancy Pay Guide for UK employers<\/a>.<\/strong><\/p>\n<h2><a id=\"howmuchis\"><\/a><strong>How Much is Severance Pay?<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">Things are not so clear when it comes to severance payments. There are no UK-specific severance laws, therefore, there is <\/span><b>no legal obligation to define a severance policy.<\/b><span style=\"font-weight: 400;\"> However, you might want to consider doing so as it safeguards your company from potential unfair dismissal claims<\/span><b>. A generous severance pay policy can also help <\/b><a href=\"https:\/\/factorialhr.co.uk\/blog\/job-advertisement\/\"><b>attract<\/b><\/a><b> <\/b><b>and <\/b><a href=\"https:\/\/factorialhr.co.uk\/blog\/employee-recognition\/\"><b>retain talent<\/b><\/a><b>, especially at an executive level.<\/b><span style=\"font-weight: 400;\"> As it\u2019s not a legal requirement, it\u2019s up to you to decide what guidelines you include in your severance policy.<\/span><\/p>\n<h4><b>Your Severance Pay UK policy may include:<\/b><\/h4>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Which employees are eligible<\/b><span style=\"font-weight: 400;\"> for a severance payment<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">What the <\/span><b>parameters and requirements<\/b><span style=\"font-weight: 400;\"> are for receiving severance pay in the UK<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A breakdown of which <\/span><b>benefits and payments<\/b><span style=\"font-weight: 400;\"> you will include in your severance packages<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Lastly,<\/span><b> how many weeks\u2019 paid <\/b><a href=\"https:\/\/factorialhr.co.uk\/blog\/notice-periods\/\"><b>notice<\/b><\/a> <span style=\"font-weight: 400;\">employees will receive according to the length of service<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The amount an employee receives usually <\/span><b>depends on the length of their employment and on the policies detailed in a company\u2019s employee handbook.<\/b><span style=\"font-weight: 400;\"> Generally speaking though, a severance payment usually includes payment in lieu of notice, accrued holidays, pension payments, and additional bonuses or discretionary amounts where appropriate.<\/span><\/p>\n<div class=\"factorial-banner inline-banner banner-freebie category-hr-tips\"\n    data-banner-id=\"170487\"\n    data-banner-type=\"freebie\"\n    data-category=\"HR Tips\">\n    <div class=\"banner-content\">\n        <div class=\"banner-text\">\n                            <h4>Download your free offboarding checklist now<\/h4>\n            \n                            <ul class=\"banner-checklist\">\n                                                                        <li class=\"not-prose\">Key steps for smooth, compliant exits<\/li>\n                                                                                                <li class=\"not-prose\">Knowledge transfer &amp; company asset return<\/li>\n                                                                                                <li class=\"not-prose\">Exit interview for a final fareware<\/li>\n                                                            <\/ul>\n            \n                            <a href=\"https:\/\/factorialhr.co.uk\/templates\/employee-offboarding-checklist\"\n                    class=\"factorial-cta-button not-prose freebie\" data-cta=\"freebie\" data-cta-position=\"inline-banner\">\n                    Download for free                <\/a>\n                    <\/div>\n\n        <div class=\"banner-image has-image\">\n            <img decoding=\"async\" src=\"https:\/\/factorialhr.com\/wp-content\/uploads\/2025\/10\/14100624\/template-static-banner.png\" class=\"not-prose\" \/>\n        <\/div>\n    <\/div>\n<\/div>\n<h2><strong><a id=\"severancepaycalc\"><\/a>Severance Pay Calculator<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">How you calculate a final severance payment is not written in stone. When it comes to severance pay,<\/span><b> it is up to you how you calculate it<\/b><span style=\"font-weight: 400;\">, unlike standard redundancy pay which must follow the government guidelines detailed above.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Will you offer a severance package to all dismissed employees? Or just those at an executive level? Which benefits will you include? Whatever you decide, you need to<\/span><b> clearly define it in your redundancy and severance policy. <\/b><span style=\"font-weight: 400;\">You also need to make sure all existing and new employees have access to the policy.<\/span><\/p>\n<p>This suggested severance pay formula gives an idea of how you could calculate severance pay taking into account their loyalty and length of service:<\/p>\n<p style=\"text-align: center;\"><strong>[Employee\u2019s weekly salary] x [Number of weeks pay you&#8217;d like to offer](Number of years of employment) = Total severance allowance<\/strong><\/p>\n<p><iframe title=\"Statutory Redundancy Pay and Notice Pay\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/rX6bULLvmYk?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p><em><strong>Related Video: UK Employment Law:<\/strong> This video explains all you need to know about Statutory Redundancy Pay and Notice Pay.<\/em><\/p>\n<h2><a id=\"isseverancepaytax\"><\/a>Is Severance Pay Taxable in the UK?<\/h2>\n<p><span style=\"font-weight: 400;\">The good news is that <strong>your redundancy pay is tax-free up to the amount of \u00a330k.<\/strong> The bad news is that <strong>other elements of severance pay are taxable in the UK<\/strong>. Elements such as holiday pay and overtime will be subject to the same tax as your usual income. It\u2019s also worth noting that cash values will be applied to any non-cash benefits and this will count towards your total redundancy pay when working out what is taxable.\u00a0\u00a0<\/span><\/p>\n<p><b>Try Factorial\u2019s all-in-one document and payroll management software<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A solid, reliable document management <\/span><a href=\"https:\/\/factorialhr.co.uk\/blog\/best-document-management-software\/\"><span style=\"font-weight: 400;\">system<\/span><\/a><span style=\"font-weight: 400;\"> can help you <\/span><b>streamline and process your severance pay policy and procedures.<\/b> <a href=\"https:\/\/factorialhr.co.uk\/document-management\"><span style=\"font-weight: 400;\">Factorial\u2019s document management feature<\/span><\/a><span style=\"font-weight: 400;\"> can help you<\/span><b> create and distribute your severance pay policy<\/b><span style=\"font-weight: 400;\"> so that your employees are aware of their rights.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It can also help you <\/span><b>coordinate a departing employee\u2019s severance pay with <\/b><a href=\"https:\/\/factorialhr.co.uk\/blog\/hmrc-payroll-payslip-download\/\"><b>payroll<\/b><\/a><b>, tax deductions and <\/b><a href=\"https:\/\/factorialhr.co.uk\/blog\/holiday-calculator\/\"><b>holiday entitlement<\/b><\/a><span style=\"font-weight: 400;\"> so that you can be sure that they are paid the right amount when they leave your company. The simple tool can help you boost your HR management processes. It can also help you <\/span><b>implement a fair and robust policy<\/b><span style=\"font-weight: 400;\"> for managing redundancies and severance pay at your company.<\/span><\/p>\n<div class=\"factorial-banner inline-banner banner-demo category-hr-tips\"\n    data-banner-id=\"167129\"\n    data-banner-type=\"demo\"\n    data-category=\"HR Tips\">\n    <div class=\"banner-content\">\n        <div class=\"banner-text\">\n                            <h4>Want see more of Factorial?<\/h4>\n            \n                            <ul class=\"banner-checklist\">\n                                                                        <li class=\"not-prose\">Automate your workflows<\/li>\n                                                                                                <li class=\"not-prose\">Save time &amp; effort<\/li>\n                                                                                                <li class=\"not-prose\">Centralise HR &amp; finance with one platform<\/li>\n                                                            <\/ul>\n            \n                            <a href=\"https:\/\/factorialhr.co.uk\/request-demo\"\n                    class=\"factorial-cta-button not-prose demo btn-brand\" data-cta=\"demo\" data-cta-position=\"inline-banner\">\n                    Get a demo                <\/a>\n                    <\/div>\n\n        <div class=\"banner-image has-image\">\n            <img decoding=\"async\" src=\"https:\/\/factorialhr.com\/wp-content\/uploads\/2025\/09\/01114707\/Discover-banner-factorial-laptop.png\" class=\"not-prose\" \/>\n        <\/div>\n    <\/div>\n<\/div>\n<h2>Severance Pay FAQs<\/h2>\n<h3><strong>What is severance pay, and who is eligible to receive it in the UK?<\/strong><\/h3>\n<p>Severance pay, also known as redundancy pay, is a payment made by an employer to an employee who is being made redundant. Employees in the United Kingdom who have worked for their employer for at least two years are eligible for statutory redundancy pay. Employers may, however, offer enhanced redundancy pay as part of the employee&#8217;s contract or as a gesture of goodwill.<\/p>\n<h3><strong>How is the amount of severance pay determined in the UK?<\/strong><\/h3>\n<p>The amount of statutory redundancy pay an employee is entitled to in the UK is based on the length of their service, their age, and their weekly pay. The maximum amount of statutory redundancy pay is currently \u00a317,130. However, employers may offer enhanced redundancy pay, which can be a higher amount than the statutory minimum.<\/p>\n<h3><strong>Is severance pay taxable in the UK?<\/strong><\/h3>\n<p>Redundancy pay of up to \u00a330,000 is tax-free. Any non-cash perks included in your redundancy payment, such as a holidays or accomodation, will be valued in cash. For tax purposes, this will be included in your redundancy pay. This might push your total redundancy pay beyond the \u00a330,000 mark.<\/p>\n<h3><strong>Can employees negotiate the amount of severance pay they receive in the UK?<\/strong><\/h3>\n<p>Employees who have a good working relationship with their employer or who have legal representation may be able to negotiate the amount of severance pay they receive. The amount of statutory redundancy pay an employee is entitled to, on the other hand, is determined by a fixed formula, so there is less room for negotiation in these cases. Employers may provide enhanced redundancy pay as part of a voluntary redundancy package that can be negotiated on an individual basis.<\/p>\n<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"FAQPage\",\n  \"mainEntity\": [{\n    \"@type\": \"Question\",\n    \"name\": \"What is Severance Pay UK?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Severance pay is a form of compensation paid to an employee on the early and unwilling termination of their contract. It applies when an employee is dismissed through no fault of their own. For example, if they have been removed from a position due to company restructuring or if their employment is \u201csevered\u201d.\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"Is Severance Pay the Same as Redundancy Pay?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The meaning of severance pay differs slightly to redundancy pay. Redundancy payments and severance payments can often mean the same thing, but there are situations where that\u2019s not the case. <\/p>\n<p>Legal Redundancy Pay in the UK is a basic amount that you must pay an employee if you make them redundant. According to the Employment Rights Act 1996, an employee is entitled to redundancy pay on dismissal when:<\/p>\n<p>1.- Their position no longer exists within the company (due to restructuring or downsizing);\n2.- Their role is no longer required at their place of work (due to outsourcing or relocation of operations); or\n3.- The duties undertaken by an employee are no longer required by the company (due to changes in business needs).\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"Standard Redundancy Pay UK: What is it?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Statutory redundancy payments depend on an employee\u2019s contract and length of service, as well as the reasons for dismissal.<\/p>\n<p>A severance payment can be a larger package, including redundancy pay and any other employee payments, such as benefits and bonuses. Redundancy pay is regulated by law, but it\u2019s up to you to negotiate severance packages within your employment contracts.\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"How Much is Severance Pay?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"When it comes to redundancy pay, the UK law is clear. If you make an employee redundant, you must pay them a statutory redundancy settlement if they have been with you for at least two years. <\/p>\n<p>The amount of pay they are entitled to will depend on their length of service (capped at 20 years) and age:<\/p>\n<p>- 21 and under \u2013 0.5 week\u2019s pay for each full year of service\n- 22 to 40 \u2013 one week\u2019s pay for each full year of service\n- 41 and above \u2013 1.5 week\u2019s pay for each full year of service<\/p>\n<p>As of the 6th of April 2022, the law has capped weekly pay at \u00a3571. The maximum statutory redundancy settlement you can pay an employee is \u00a317,130.\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"How is the amount of severance pay determined in the UK?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The amount of statutory redundancy pay an employee is entitled to in the UK is based on the length of their service, their age, and their weekly pay. The maximum amount of statutory redundancy pay is currently \u00a317,130. However, employers may offer enhanced redundancy pay, which can be a higher amount than the statutory minimum.\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"Is severance pay taxable in the UK?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Redundancy pay of up to \u00a330,000 is tax-free. Any non-cash perks included in your redundancy payment, such as a holidays or accomodation, will be valued in cash. For tax purposes, this will be included in your redundancy pay. This might push your total redundancy pay beyond the \u00a330,000 mark.\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"Can employees negotiate the amount of severance pay they receive in the UK?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Employees who have a good working relationship with their employer or who have legal representation may be able to negotiate the amount of severance pay they receive. The amount of statutory redundancy pay an employee is entitled to, on the other hand, is determined by a fixed formula, so there is less room for negotiation in these cases. Employers may provide enhanced redundancy pay as part of a voluntary redundancy package that can be negotiated on an individual basis.\"\n    }\n  },{\n    \"@type\": \"Question\",\n    \"name\": \"What is severance pay, and who is eligible to receive it in the UK?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Severance pay, also known as redundancy pay, is a payment made by an employer to an employee who is being made redundant. Employees in the United Kingdom who have worked for their employer for at least two years are eligible for statutory redundancy pay. Employers may, however, offer enhanced redundancy pay as part of the employee\u2019s contract or as a gesture of goodwill.\"\n    }\n  }]\n}\n<\/script><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Let\u2019s start with the most common question: is severance pay the same as redundancy pay?\u00a0 In some ways, yes. Both are a form of financial settlement for departing employees. But there is a distinction between the two and, as an employer, it is important that you understand this. This will help ensure smooth operations, happy<a href=\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\" class=\"read-more\"> [&#8230;]<\/a><\/p>\n","protected":false},"author":136,"featured_media":71589,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[108,343,338,337],"tags":[],"class_list":["post-38407","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-hr-tips-en-gb","category-hr-trends","category-legal-finance","category-talent"],"acf":{"topics":"core"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v21.5 (Yoast SEO v21.9.1) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Severance Pay in the UK? - Ultimate Guide | Factorial HR<\/title>\n<meta name=\"description\" content=\"Everything you need to know about severance pay, redundancy pay, the difference between them, who is entitled and how much more.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Severance Pay: How Does It Work and Who Is Entitled to It\" \/>\n<meta property=\"og:description\" content=\"Everything you need to know about severance pay, redundancy pay, the difference between them, who is entitled and how much more.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\" \/>\n<meta property=\"og:site_name\" content=\"Factorial\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/people\/Factorial\/100064908455810\/\" \/>\n<meta property=\"article:published_time\" content=\"2021-02-17T18:16:41+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-31T08:58:53+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/factorialhr.co.uk\/wp-content\/uploads\/2021\/02\/15162234\/imgonline-com-ua-CompressToSize-dwjfXq4cC5t.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"830\" \/>\n\t<meta property=\"og:image:height\" content=\"400\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Factorial\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@factorialapp\" \/>\n<meta name=\"twitter:site\" content=\"@factorialapp\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Factorial\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"9 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\"},\"author\":{\"name\":\"Factorial\",\"@id\":\"https:\/\/factorialhr.co.uk\/blog\/#\/schema\/person\/7b5a5469052118a0a452edb12733e380\"},\"headline\":\"Severance Pay: How Does It Work and Who Is Entitled to It\",\"datePublished\":\"2021-02-17T18:16:41+00:00\",\"dateModified\":\"2026-03-31T08:58:53+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\"},\"wordCount\":1864,\"publisher\":{\"@id\":\"https:\/\/factorialhr.co.uk\/blog\/#organization\"},\"articleSection\":[\"HR Tips\",\"HR Trends\",\"Legal &amp; Finance\",\"Talent Management\"],\"inLanguage\":\"en-GB\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\",\"url\":\"https:\/\/factorialhr.co.uk\/blog\/severance-pay\/\",\"name\":\"What is Severance Pay in the UK? 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