Redundancy in Ireland – Calculating Your Payment
The employment landscape was looking good in Ireland for several years as our economy seemed to improve. However, economists issued a dire warning about a likely upcoming recession. As it happens, a global pandemic has arrived to cause catastrophe and likely financial chaos, and there is a chance we will enter an economic depression.
Already, Irish companies and multinationals with a strong presence in Ireland have been forced to make tens of thousands of employees redundant. It is a complicated and unexpected situation, and many people were caught unaware. As a result, they seek reliable information on redundancy in Ireland, which is something we aim to provide in this guide.
What is Redundancy?
The term ‘redundant’ means ‘not or no longer needed or useful.’ In the field of employment, redundancy is when you lose your job due to a situation such as a business closing or making cuts. In the latter scenario, the most obvious way to save money is to reduce the number of employees.
The most common examples are:
- Voluntary Redundancy: Where a firm asks employees to volunteer for redundancy. The individual(s) in question receive a more generous financial package than they would otherwise get.
- Collective Redundancy: When an organisation terminates the contracts of employees in a period of 30 days.
Those who are made redundant in Ireland often have no idea what to expect in terms of finance, nor do they know what they are and are not entitled to.
Types of Redundancy Payment
There are two types of redundancy payments.
Statutory Redundancy
According to The Redundancy Payments Act, 1967-2007, companies are obliged to pay this entitlement. It is calculated according to your normal earnings and length of time in service to the organisation. If you are eligible, you receive two weeks’ pay for every year you have worked for a firm, along with an extra week.
Ex-Gratia Redundancy
According to the law, companies are only obligated to make redundancy payments to eligible employees. However, they have the option to provide an additional sum, known as an ex-gratia payment.
Incidentally, an employer must provide a notice period to staff with at least 104 weeks of continuous service with the company. They can do this via part A of form RP50 (it is a notification of redundancy), which they give to the employee.
Which Employees are Covered?
Please note that not everyone is entitled to a redundancy payment. The main rule is that you need a minimum of two years’ continuous service with an employer to qualify. Incidentally, absences such as illness, carer’s leave, or maternity leave do NOT break this length of service stipulation.
Also, you can only qualify for a payment if you are made redundant. You are entitled to nothing if your employer dismisses you. The other main requirement is that you must be paying Class A PRSI unless you are a part-time worker. It isn’t a big issue since the vast majority of workers pay it. Finally, only those over the age of 16 are eligible.
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What Taxes Must I Pay?
Statutory redundancy payments are tax-free. However, you are likely to be taxed on ex-gratia redundancy. There is a basic exemption of €10,160 on this payment, along with €765 for each full year of service. There is also an increased exemption, which adds €10,000 to a maximum of €20,160, along with the €765 per year of service payment. You would receive this benefit if you didn’t make any lump sum claim in the last ten tax years.
Those in an occupational pension scheme have their €10,000 entitlement cut by the amount of:
- Any tax-free lump sum received from the pension scheme that you’re entitled to immediately.
- The current value, at the date when you left employment, of any tax-free lump sum you received from the pension scheme or is potentially receivable in the future.
If your pension scheme lump sum is above €10,000, you won’t receive the increased exemption. The other exception is the Standard Capital Superannuation Benefit (SCSB) which involves the use of a formula involving the following:
- The number of full years of service.
- The average annual remuneration from your employment for the last three years ending on the day you were made redundant.
- Tax-free lump sums from occupational pension schemes.
How Much is Redundancy Pay?
There is a maximum earnings limit of €600 per week or €31,200 a year. This is bad news for individuals made redundant from high-paid roles. Also, your payment is based on gross pay. It is also important to note that the excess days are calculated as a portion of 365 days. For instance, if you worked at a company for three years and 73 days, your length of service is calculated as 3.20 years.
How is Redundancy Calculated?
Calculating a redundancy payment is a relatively straightforward process for most people. It gets a little more complicated if you take into account increased exemptions and SCSB on ex-gratia payments.
If you worked for a company for eight years and 156 days and only receive statutory redundancy, you will get the following as a tax-free lump sum payment, assuming your earnings are €31,200 per annum or above.
8 x 2 = 16 + 1 = 17 full weeks of pay.
156 / 365 = 0.43 weeks of pay.
17.43 x €600 = €10,458
If you worked for a firm for six years and 234 days, and your weekly earnings were €520, here is how much you receive.
6 x 2 = 12 + 1 = 13 full weeks.
234 / 365 = 0.64 weeks.
13.64 x €520 = €7092.80
Let’s say you worked for a company for 16 years and 89 days, and your firm rewards you with an ex-gratia payment of €16,000. You earn €60,000 a year. In this instance, you should escape tax without any need for the increased exemption.
16 x 2 = 32 + = 33 weeks
89 /365 = 0.24
33.24 x €600 = €19,944 in statutory redundancy
Your ex-gratia payment should remain tax-free because:
16 x €765 = €12,240
Add the €10,000 tax-free entitlement, and you would escape tax for ex-gratia payments up to €22,240
Therefore, you will receive €35,944 tax-free!
Being made redundant is tough, but you can use the payment to buy yourself time to find a new role.
What should I read next?
- Learn all about what do after an Unfair Dismissal