Increasingly clients are engaging us to assist in the implementation of redundancy programs. Redundancies may be Collective Redundancy programs, in which at least 5 people are being made redundant from a normal employment level of 20 or more. However, in the case of most small businesses, only one or two employees are involved.
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Notice of redundancy
In either case, an employee is entitled to statutory minimum notice of redundancy, which depends on the employee’s length of service, as follows:
Period of service & Minimum notice
2 to 3 years – 2 weeks
5 to 10 years – 4 weeks
10 to 15 years – 6 weeks
15 or more years – 8 weeks
Calculation of statutory redundancy payment
Where an employee has more than two years’ service, the minimum statutory redundancy payment is calculated as two weeks pay per year of service plus one bonus week. Weekly pay is capped at €600. The employer may apply for a rebate of 60% of the statutory redundancy payment from the Department of Enterprise and Employment. Such refunds are currently taking around six months to process. Statutory redundancy payments are tax-free.
Quite often, an employer will make an additional “ex-gratia” payment.
Payment in lieu of notice
Provided that payment in lieu of notice is not part of the employment contract, it may be included in the ex-gratia payment and thereby receive favourable tax treatment (see below).
Ex-gratia payments are subject to the following tax exemptions:
- Basic exemption €10,160, plus €765 per year of service
- Increased Basic Exemption – This is the basic exemption as indicated at 1) above, plus an increase of €10,000. This exemption can only be claimed once every ten years and application must be made to Revenue before the exemption may be applied.
- SCSB – Standard Capital Superannuation Benefit
- This exemption is of benefit to those with long service or high income. The calculation is based on average annual salary for the last 36 months of employment, multiplied by complete years of service, divided by 15.
The present value of any tax-free lump sum which an employee may be entitled to from the occupational pension scheme at retirement age must be deducted from the Increased Basic Exemption and the SCSB. Any portion of the ex-gratia payment not covered by the above exemptions will be taxed in the month of receipt. The payment is not subject to PRSI, but the income and health levies apply.
We will be happy to assist employers in managing redundancy situations and in all routine payroll-related matters. Call Long & Company on 045-408300.