Redundancy payments in Ireland

09 July 2019

If your business is going through major difficulties, it’s your right as an employer to decide to make employees redundant.

However, as part of a fair redundancy process your business must ensure you provide the correct amount of pay upon their dismissal.

If you have employees that meet the continuous service requirements and are eligible for a redundancy payment, you’re legally obliged to pay those employees statutory redundancy pay in Ireland. 

And in this guide, we take you through how to do this - with advice on the calculations you need.

Do companies have to pay redundancy?

If you’re wondering, “Do I have to pay redundancy?” Well, yes. There’s a legal redundancy pay requirement you need to meet. 

Just to clarify at this point, but you may wonder about the difference between severance and redundancy pay. 

Well, “severance” is likewise a payment that you make to an employee when you terminate their employment but the term refers to an ex-gratia severance payment that you negotiate with the employee. These type of redundancy payments are usually paid in addition to statutory redundancy pay and are usually based on custom and practice or industry norms.

An employee has entitlement to a minimum level of redundancy pay under the Redundancy Payments Acts in Ireland. 

If an employee faces redundancy, they qualify for statutory redundancy pay if they have 104 weeks’ continuous reckonable service or more with the employer in question.

However, this doesn’t prevent further questions from businesses. Such as, “Who pays redundancy, the employer or government?” In most instances it’ll be you, the employer, but if you can’t afford to pay then there’s a way around this. We explain the process further below. 

The legislation for this is in the Redundancy Payments Acts (consolidated) 1967--2014. It sets out the minimum payments qualifying employees can claim. 

The purpose of the legislation is to provide employees with legal entitlement to a minimum redundancy payment.

Redundancy pay and a notice period are two aspects of redundancy you must get right to ensure you conduct a fair dismissal process before confirming redundancies. 

How much is redundancy pay in Ireland?

The statutory amount is two weeks’ worth of pay for every year of service the employee has with your business. That’s if they’re over the age of 16. Plus one bonus week.

So, if an employee has exactly three years’ service they have entitlement to:

  • Three years x two weeks + one bonus week = Seven weeks of statutory redundancy pay. 

The weekly pay is set on the normal weekly wage earned by that employee during their employment, including commission or other varied payments, but it is subject to the statutory redundancy pay cap of €600 per week.

If the employee with three years’ service earned €800 a week then their statutory redundancy has a cap at (7 weeks x €600) = €4200. 

Include any part years’ service on a pro rata basis when calculating the employee’s redundancy entitlement.

And when do you have to pay redundancy? Well, this is once the employee’s dismissal from your business comes into effect. 

As in, the termination date or when their contract of employment ends and they leave your business. 

How many weeks is statutory redundancy pay? 

Employees are entitled to two weeks of pay for every year of service an employee has had with your business. That’s so long as they were over the age of 16. 

There’s also one bonus week of pay. 

What is included in redundancy payments?

First of all, statutory redundancy payments are only payable to qualifying employees, in other words, employees who have completed two years’ continuous service with your business.

As mentioned above, the statutory redundancy payment is a lump-sum payment that's calculated on the employee’s pay. So this would include the employee’s gross weekly wage, regular overtime payments and other benefits in kind.

Is there a redundancy payments tax-free limit?

How much taxable pay is due on redundancy payments depends on the structure of your redundancy payment.  The statutory minimum is taken tax free by the employee but if you make an ex-gratia payment to employees, this part of the payment is not tax exempt although some tax reliefs may be available to employees.

Professional tax advice should be sought to confirm the extent of any tax liabilities associated with redundancy payments.

How are redundancy payments taxed?

But is a redundancy payment tax free? Yes and no. Your employees will take statutory redundancy payments tax-free. 

Any non-statutory redundancy payments your employees receive are taxable but there may be tax reliefs available to them depending on the circumstances. 

If you're providing any ex-gratia payments in excess of the statutory redundancy payment, you'll have to assess the relevant tax liability, deduct it from the lump sum and to account to revenue for the relevant tax liability under the PAYE system.

What happens if a company can’t afford to pay redundancy?

So, who pays for redundancy when an employer cannot? In Ireland, the Redundancy Payments Scheme provides an employee with the redundancy payment if you’re unable to do so. 

If you can’t afford to pay redundancy then the employee can apply to the Department of social Protection for direct payment from the Social Insurance Fund. 

The employee will ask you to sign the RP50 form which is still a requirement under the Redundancy Payments Acts. 

If an employer is unable to pay redundancy,  they need to satisfy the Department of Employment Affairs and Social Protection that if they were to pay statutory redundancy to the exiting employees, this would cause more job losses. If you are in this scenario, you need to submit documentary evidence confirming the financial position. Under the Redundancy Payments Scheme, the Department will then pay the statutory payments to employees and recover the debt from the employer at a later date.

And if a business closes who pays redundancy? This will be a matter for the liquidator or receiver that is winding up the company. 

For redundancy pay for part-time workers, employees still have the right to claim statutory redundancy pay as outlined above.

Redundancy payments during the coronavirus pandemic

What happens if your business can’t pay redundancy due to coronavirus? Well, if you’re suffering from cash flow issues then you may be able to get support under the Temporary Wage Subsidy Scheme to assist your business and employees. 

Redundancy pay and liquidation

If your business has been liquidated or is in receivership, the liquidator or receiver will assume responsibility for ensuring that the redundancy payments comply with the statutory minimums.

Are Directors entitled to redundancy pay?

Yes. Provided a director is an employee of the business, s/he can claim a redundancy payment after dismissal as outlined above. 

Keeping records of your redundancy payments

Dismissing staff is a difficult process to manage on a human and business level. 

To make sure you don’t turn a difficult situation into an even worse one, it’s good business practice to maintain satisfactory supporting records of all redundancy payments you make. 

A clear paper trail is important if you ever have to prove what payments you made, such as in the event of an unfair dismissal claim in the Workplace Relations Commission. 

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