How to calculate redundancy payments

One of the key compliance issues in a redundancy situation is the statutory redundancy payment.

Making jobs redundant is a difficult scenario for both business owners and staff.

From the employer’s perspective, it’s an enormous challenge to handle both the technical aspects of a redundancy process as well as the personal impact on employees.

One of the fundamental compliance issues in a redundancy situation is to ensure that staff receive their statutory redundancy payment.

Redundancy compliance

As redundancy is a form of dismissal, you must ensure that you comply with fair procedures before confirming your decision to terminate an employee’s contract of employment.

Typically, this means that you must:

• establish that there is a genuine reason for the redundancy (i.e. business closure, lack of work, restructure)
• engage in a meaningful consultation process with the employees being made redundant
• use objective selection criteria if only certain employees doing the same role are being made redundant.

What is a statutory redundancy payment?

Once you have established that a genuine redundancy situation exists and complied with your consultation and fair selection obligations, you have a duty as an employer to ensure that any staff who are being made redundant receive a statutory redundancy payment.

The Redundancy Payment Acts 1967 – 2022 set out the minimum redundancy lump sum payment to be paid to eligible employees.

This lump sum is generally referred to as the 'statutory redundancy' payment.

Do all staff receive a statutory redundancy payment?

An employee is eligible to receive a statutory redundancy payment if they:

• have completed 104 weeks of continuous employment
• their employment was insurable under the Social Welfare Acts (i.e. PRSI was paid), and
• are over the age of 16.

How to calculate the statutory redundancy payment?

A statutory redundancy payment is straightforward to calculate. Eligible employees are entitled to receive:

• two weeks of their normal weekly remuneration for every year of service subject to a cap of €600 per week, and
• one bonus week.

An employee with exactly ten years of reckonable service on a salary of €800 per week would therefore receive €12,600 (€600 cap x 2 x 10 + €600 for bonus week) in statutory redundancy pay.

COVID-19 redundancy regulations

The Government has also introduced a COVID-19 Related Lay-Off Payment Scheme to ensure that employees who lost out on reckonable service due to pandemic-related restrictions receive a redundancy payment.

The COVID-19 Related Lay-Off Payment Scheme provides a once off, lump sum payment to employees who:

• were made redundant since 13 March 2020, or are made redundant before 31 January 2025, and
• lost the opportunity to build reckonable service due to temporary lay-offs caused by the COVID-19 restrictions from 13 March 2020 to 31 January 2022

Employees who were temporarily laid off due to the COVID-19 restrictions during some or all of the period between 13 March 2020 and 31 January 2022 are entitled to a redundancy payment if they are made redundant between 13 March 2020 and 31 January 2025. Employees must still have two years’ reckonable service including the period of layoff to qualify.

The calculation for this payment is based on the existing statutory redundancy payment rules.

Are employees entitled to receive anything above the statutory redundancy payment?

Your only legal obligation as an employer is to pay the statutory redundancy payment.

Depending on the circumstances however, you may wish to provide a more generous payment to any staff being made redundant.

Employers seeking voluntary redundancies for example may seek to incentivise staff to volunteer for redundancy by offering a generous severance package that includes a top up on the statutory redundancy payment.

Any such top up payment is entirely discretionary.

Get your statutory redundancy calculations right

Redundancy is one of the most technical areas of employment law.

To ensure all aspects of your redundancy process comply with the law, call one of our employment law experts on 1800 719 230