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19.03.2021

Redundancy Payments

redundancy-payments-calculator

By Fiona Kelleher

During difficult periods, a business may need to consider reducing their headcount. If they cannot find an alternative to redundancy, a business will need to begin a redundancy process.

Redundancy is a technical area of employment law and an important aspect to consider is the issue of redundancy payments.

Redundancy payment legislation covers redundancy payments in Ireland. The Redundancy Payments Acts 1967 to 2014 set out the law for both employers and employees.

Failure to adhere to these acts can lead to WRC claims which may be appealed to the High Court. This makes handling redundancies and redundancy payments vital.

Employers have a lot to consider with redundancies. One wrong move can lead to WRC claims and employee relations issues with staff who remain on with the business. Graphite offers HR services to help and explains more below.

What is a redundancy payment?

A redundancy payment is a sum of money payable by law to a redundant employee. Broadly speaking, it is a lump sum that is proportional to the length of time the employee has been in employment with a company.

Statutory redundancy payments follow a simple calculation that is laid out in the legislation.

In addition to statutory redundancy payments, in certain circumstances employers may offer an ex-gratia redundancy payment to induce staff to volunteer for redundancy.

It’s also important to comply with minimum notice legislation. Employees are entitled to receive the salary payable during their notice period (whether they work out their notice period or not) as part of their severance package. It’s possible to pay employees their notice period if you don’t want them to work out their full notice. This is known as payment in lieu of notice (PILON) and must be equal to the amount of pay an employee would receive for the duration of their notice period.

Redundancy Payments in Ireland

In the event of redundancies, eligible employees must receive statutory redundancy pay.

Statutory redundancy pay is paid at a rate of two weeks’ pay for every year of service, along with one additional week’s pay. The amount of statutory redundancy therefore depends on an employee’s length of service.

When considering how much statutory redundancy is, the longer an employee has worked, the higher their statutory redundancy payment is. There is no way to calculate an average redundancy package in Ireland as each business will have a different set of circumstances to consider.

An employee will be entitled to receive a statutory redundancy payment provided:

  • The employee’s role no longer exists/has been made redundant
  • The employee must have at least 104 weeks (or two years) of employment with the employer
  • The employee must be over 16 years of age
  • The employment must be fully insurable under the Social Welfare Acts

A statutory redundancy payment will be no more than €600 per week and high earners therefore will receive less than their usual salary per week.

For example, the average monthly salary that equals the limit of statutory redundancy pay is €2,400, based on the €600 per week figure. If an employee has an average monthly salary of €3,000, this would result in an average weekly salary of €750.

However, the limit on statutory redundancy pay is €600. This means that statutory redundancy lowers this employee’s redundancy payments to €600 per week.

As long as someone is an employee of a company and meets the qualifying criteria under the redundancy legislation, the employee is entitled to receive redundancy pay. This includes senior management and directors, who are entitled to redundancy pay.

Is redundancy taxed?

Statutory redundancy payments are taken tax free. Any ex-gratia payments in addition to statutory redundancy are subject to tax but may qualify for certain tax reliefs.

The treatment of tax on redundancy payments in Ireland depends on the composition of the redundancy payment.

Taxation of redundancy payments in Ireland varies therefore depending on what type of redundancy payment that is being made.

Redundancy and payment in lieu of notice

In the event of redundancy, employers must provide a notice period based on the minimum notice legislation and the terms of the contract of employment. The Minimum Notice and Terms of Employment Act 1973 set out the following minimum notice periods.

Duration of employment      Minimum notice

13 weeks to 2 years                1 week

2 years to 5 years                   2 weeks

5 years to 10 years                 4 weeks

10 years to 15 years               6 weeks

15 years or more                    8 weeks

 

If the employee is not required to work out their notice period, the employer must provide payment in lieu of notice. A payment in lieu of notice must be the same as the amount of wages the employee would receive if they were required to work out their notice period.

Employers must also pay an employee’s accrued holiday pay. To avoid paying any accrued holiday pay, an employer can choose to allow holiday bookings during a notice period. However, this area isn’t covered by legislation and if an agreement cannot be reached with the employee, the employer may need to pay the employee any remaining unused holidays.

Expert help with redundancy payments with Graphite

When considering redundancies, it’s vital for a business to consider every factor before confirming terminations.

Any mistakes can result in claims from disgruntled ex-employees. Such claims can be very damaging to a business that may already be in a difficult position.

This is where expert HR assistance from Graphite becomes priceless.

Our team of experts help you navigate redundancy payments fairly and legally. This means you can make those hard decisions without fear of breaking redundancy payment rules.

Calculating redundancy payments can create confusion for any business. If your company needs help navigating them, get in touch with us. Call 01 886 0350 or email info@graphitehrm.com.

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