Facing redundancy is one of the most stressful experiences an NHS professional can encounter. However, the Agenda for Change contract provides one of the most comprehensive redundancy packages in the UK public sector. Governed by Section 16 of the NHS Terms and Conditions of Service Handbook, these rules ensure that staff are compensated fairly for their years of dedication.
As the NHS continues to undergo structural changes in 2026/27, understanding the difference between statutory redundancy and your contractual Section 16 rights is vital. This long-form guide explores the nuances of reckonable service, the calculation formulas, and the specific traps that can lead to a loss of entitlement.
The Fundamental Eligibility Criteria
Not every staff member facing a post-deletion is entitled to a redundancy payment. To qualify for a contractual redundancy payment under Section 16, you must meet two primary hurdles:
- Two Years of Continuous Service: You must have at least two years of continuous service within the NHS. This does not necessarily have to be with your current Trust, but it must be within the wider NHS family.
- The Genuine Redundancy Definition: The role itself must be disappearing. This typically happens during a departmental merger, a service closure, or a wider Integrated Care Board restructuring. If you are dismissed for performance or conduct reasons, these rules do not apply.
Defining Reckonable Service
The engine behind your redundancy calculation is your reckonable service. This is often the most contested part of a redundancy package. In the NHS, reckonable service is the total of all periods of employment with an NHS employer, provided there has not been a break in service of more than one week, from Sunday to Saturday, between roles.
There are specific protections for those who have taken career breaks or worked for other public bodies. For example, service with a local authority can sometimes be counted if you were transferred into the NHS under TUPE regulations. It is essential to check your Electronic Staff Record to ensure your continuous service date accurately reflects your history, as even a small discrepancy can result in the loss of thousands of pounds in a final settlement.
The Redundancy Calculation Formula
The NHS redundancy payment is significantly more generous than the UK statutory minimum. While the government's statutory rate is capped at a low weekly amount, the NHS contractual rate is based on your actual weekly pay.
The formula is as follows: one month’s pay for each complete year of reckonable service.
- A Month's Pay: This is calculated as 4.33 weeks of your annual salary. For 2026/27, this includes your basic pay, inclusive of the 3.3% award, any High Cost Area Supplements, and regular recruitment and retention premia.
- The 24-Year Cap: Contractual redundancy pay is capped at a maximum of 24 years of service. This means the maximum payment any staff member can receive is 24 months, or two years, of full salary.
- The £160,000 Total Cap: Regardless of your years of service or seniority, there is a hard ceiling on redundancy payments in the public sector, currently capped at £160,000.
Suitable Alternative Employment and the Loss of Right
This is a critical trap within Section 16. The NHS has a duty to try and find you suitable alternative employment to avoid making you redundant.
If your Trust, or any other NHS employer, makes you a formal offer of a suitable alternative role before your current contract ends, and you unreasonably refuse that offer, you may forfeit your right to redundancy pay.
- What is Suitable? This is subjective but generally looks at your pay band, your clinical skills, and the travel distance to the new site. If you are a Band 7 Lead and are offered a Band 7 role within a 10-mile radius, it is likely to be deemed suitable.
- The Trial Period: You are entitled to a four-week trial period in any new role. If, during those four weeks, it becomes clear that the role is not actually a match for your skills, you can still leave and retain your redundancy entitlement.
Taxation of Redundancy Payments
One of the few silver linings of a redundancy settlement is the tax treatment. In the UK, the first £30,000 of a redundancy payment is usually tax-free.
Any amount above this £30,000 threshold will be subject to Income Tax at your normal rate, 20%, 40%, or 45%. However, National Insurance is typically not deducted from redundancy payments, even on the portion above £30,000. This results in a higher net figure than a standard bonus or salary payment. You can use our NHS Pay Calculator to estimate your monthly take-home to compare how a lump sum might sit alongside your usual earnings.
The Interaction with the NHS Pension
If you are over the minimum pension age, currently 55 or 57 depending on your circumstances, you may face a choice between taking your redundancy payment as a lump sum or using it to buy out the actuarial reduction on your pension.
Usually, if you take your pension early, it is reduced because it is being paid out for longer. However, under the redundancy rules, your employer may use your redundancy pay to pay a capital sum into the NHS Pension Scheme, allowing you to retire early on an unreduced pension. This is a complex financial decision that requires professional advice, as once the redundancy payment is diverted to the pension scheme, it cannot be reclaimed as cash.
Planning for the Future
If you are at risk of redundancy, it is vital to audit your payslips. Ensure your band, years of service, and any High Cost Area Supplements are correctly recorded. A move to a higher band recently, as discussed in our Promotion Rule Guide, could significantly increase your redundancy month's pay value.
We recommend using the full NHS Pay Calculator to establish your current gross monthly figure. This figure, multiplied by your years of service up to 24, will give you the most accurate starting point for your redundancy projections.
Related guides: Review the NHS Promotion Rule, understand deduction effects in NHS Pension Tiers, and compare salary baselines on the NHS Pay Calculator.