Redundancy in Ireland: What you Need to Know

10 August 2020

Redundancy isn’t the most pleasant topic to discuss, but it is important. You need to know your own and your employees’ rights if your business is closing or reducing the number of employees.

There are many aspects that affect the redundancy process in Ireland. This piece will cover the following aspects:

  • Redundancy meaning
  • The process in Ireland
  • Redundancy payments in Ireland
  • Tax
  • Voluntary and collective redundancy.
  • Fair selection.
  • Short time and layoffs

Redundancy Definition

There are a number of different redundancy rules in Ireland. So what is redundancy? Redundancy occurs when work of a particular kind at a particular site has ceased or diminished, or is expected to cease or diminish. This may arise for various different reasons which are set out in the Redundancy Payments Act 1967 as amended.

The Redundancy Process in Ireland

You must follow certain procedures when making an employee redundant. The redundancy process in Ireland is complex—you need to approach it carefully and be thorough and fair.

Before beginning a process, you must first ensure that you have a legitimate reason for the proposed redundancies under the legislation. If you do not adhere to this, the employee can claim unfair dismissal or make a complaint to the Workplace Relations Commission.

Section 7(2) of the acts states that there are five genuine grounds for redundancy situations, summarised below:

  • Closure of the employer's business, or its cessation in a particular location
  • The disappearance of the employee's job specifically
  • A reduction in the numbers of the workforce overall
  • The replacement of the employee by someone who can also do the work in a manner "for which the employee is not sufficiently qualified or trained"
  • The replacement of the employee by someone who can also do other work for which the employee is not sufficiently qualified/trained

The Minimum Notice Period for Redundancy in Ireland

It’s a common question we receive from business owners, “How much notice do employers have to give for redundancy?” In the absence of contractual notice periods, the minimum statutory notice period for those selected for redundancy are those laid down in the Minimum Notice and Terms of Employment Act, 1973. That's set out below:

  • 13 weeks to 2 years’ service - 1 week.
  • 2 to 5 years’ service - 2 weeks.
  • 5 to 10 years’ service - 4 weeks.
  • 10 to 15 years’ service - 6 weeks.
  • 15 or more years’ service - 8 weeks.

An employee may wish to leave before the end of your notice period. You can decide whether to allow this request. Leaving during the notice period without your agreement, can affect employees’ redundancy entitlements and payment.

Statutory Redundancy in Ireland

First, not all employees have redundancy payment entitlements. Your employees must have been with your business for at least 104 weeks of continuous employment to qualify for a statutory redundancy payment.

If they have had 104 or more weeks’ continuous service, the employer is obliged to pay those employees a statutory redundancy payment.

The acts set out the minimum redundancy payments that qualifying employees can claim. The purpose of the legislation is to provide employees with a legal entitlement to a minimum payment. It is a lump-sum payment that's calculated on the employee’s pay.

Those qualifying can claim up to two weeks’ pay for every year of service over the age of 16 plus one further week’s pay. The payment is subject to a maximum earning limit of €600 per week. For example, if a qualifying employee has worked for you for 10 years, then the capped statutory redundancy payment is (10 x €1200) + one bonus week of €600 = €12,600.

Redundancy Payments and Tax

So you may ask yourself the question: is redundancy taxed? Employees take statutory redundancy payments tax-free but discretionary lump-sum payments in compensation for loss of employment are subject to tax.

If any ex gratia payments you decide to pay to employees as part of a redundancy round exceed the tax-free limits, they will be subject to income tax deductions.

Voluntary Redundancy in Ireland

This is the term used to describe a situation when you ask employees to volunteer for redundancy to reduce the size of your workforce. Employees who agree can claim a statutory payment. That's provided they fulfil continuous service requirements plus any additional pay incentive you might offer.

Collective Redundancy in Ireland

You will also need to confirm if the proposed redundancies constitute a collective redundancy. A collective redundancy is one where:

  • 5 employees are made redundant where 21-49 are employed
  • 10 employees are made redundant where 50-99 are employed
  • 10% of the employees are made redundant where 100-299 are employed
  • 30 employees are made redundant where 300 or more are employed.

How to use a Fair Redundancy Process

This is very important—you must respect your employees’ rights. To make it fair you should look at the job role itself and not to remove an individual employee. The change must be because of a change in the working environment. For example, if the business is closing down. Or if the role needs to be made redundant to save money.

An unfair process might involve one of the following reasons. If you:

  • Discriminate against a member of staff.
  • Indirectly discriminate against a member of staff.
  • Fail to follow your process correctly.
  • Don’t offer a consultation period.
  • Dismissing an employee after ignoring your process.
  • Fail to consider alternative roles for your employee.
  • Don’t have a process at all.

Short time and Layoffs

The coronavirus (COVID-19) pandemic has forced businesses to lay off staff or reduce their working hours. This differs from redundancy because you either cannot provide employees with enough work or you believe it to be a temporary arrangement. During lay off you remain an employee even if you are not being paid. Short time is similarly where an employee's wages and hours are cut below half for a temporary period

You should not lay off or put your employees on short time without their agreement. If they do not agree you may make them redundant. You must explain the reason for the lay off or short-time working and keep them informed of the situation during the period. In both cases, these must be temporary situations.

Disentitlement

You can offer the staff member an alternative to redundancy, such as moving to a new office.  If the employee unreasonably refuses an offer of employment, then s/he may be disentitled to a redundancy payment.

These types of cases often involve offers of employment at a different location and each case will be judged on its merits whether the offer is reasonably or unreasonable refused by the employee.

Need Our Help?

If you’re considering making redundancies and need to know if you have a strong business case, contact us for quick answers to your questions: 1890 252 923.

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