Mercer Oneview Ireland

Redundancy

If you have been or are being made redundant, it is important that you are aware of your entitlements and your options. The Redundancy Payments Acts allow for most employees who experience redundancy to receive a cash payment on top of any wages they are due.

This page deals primarily with the payments that you may receive on Redundancy; however you are probably also looking to the future. You may be interested in the substantial assistance available to you if you wish to start up your own business. You may be entitled to Jobseeker's Benefit or Jobseeker's Allowance from the government.

Who gets redundancy payments?

You are covered under the Redundancy Acts, and are thus eligible for a Redundancy Payment, if you meet the following requirements:

  • You are at least 16 years old
  • You have at least 2 years continuous service
  • You are in employment which is insurable for all Social Welfare benefits
  • You have been made redundant as a result of a genuine redundancy situation i.e. your job no longer exists and you are not replaced.

Your employer may choose to provide redundancy payments if you do not qualify under these conditions. However, if you do not meet the above requirements, there is no obligation to do this and such payments would not qualify for tax relief.

Statutory Redundancy Payment

Statutory redundancy payments are the bare minimum that you will be entitled to in the event of meeting the redundancy requirements. If your employer is insolvent and unable to meet your statutory redundancy entitlements they will be provided by the state. Your statutory redundancy payments are:

  • 2 weeks pay for each year of continuous employment with this employer over the age of 16
  • 1 bonus week of pay in addition

Also consider the following:

  • For the purposes of this calculation, one week’s pay is limited to a maximum of €600
  • Statutory redundancy payments are not taxable

Continuous employment will be calculated by subtracting sick leave of more than 26 weeks, occupational injury leave of over 52 weeks and absence from work because of lay-offs or strikes.

Example

Suppose you have been working for your employer for 10 years. You earn a salary of €60,000 per annum. You are made redundant and your employer provides only the statutory redundancy payment.

Your entitlement is 10 (years of service) X 2 (weeks pay) +1 (weeks pay) = 21 weeks pay

One week’s pay is €60,000/52, or €1,154 per week. However for statutory redundancy purposes a weeks pay is limited to €600.

Therefore your statutory redundancy payment is €600 X 21 = €12,600

Excess payments

Many employers offer additional redundancy payments along with the statutory minimum. These are called “Ex-gratia payments”. The state does not limit what redundancy payments can be offered – however it does have rules regarding the amount of any such payment that will be taxable.

The rules are as follows:

Basic Exemption

In any event, your employer can give you an ex-gratia payment of €10,160 with an additional €765 for each year of service tax free.

Increased Exemption

You may be able to increase your exemption by €10,000 to €20,160 plus €765 for each complete year of service provided that you have not made a claim for the increased exemption amount in the previous ten tax years.

There may be good reason not to avail of the increased exemption, because it may be affected by any future lump sum entitlement that you may be entitled to from an occupational pension scheme. Unless you waive your right to a lump sum from your pension scheme, this increased exemption of €10,000 is reduced by either:

(i) Any lump sum from the pension scheme to which you may be immediately entitled, or
(ii) The present day value at date of leaving employment of any lump sum which may be received from the pension scheme in the future

Any decision you make to waive your right to a lump sum from your pension scheme is irrevocable.

Standard Capital Superannuation Benefit

Rather than using the basic or increased exemption, you can calculate your tax free redundancy entitlement by taking your average earnings over the last 36 months, multiplying them by your number of years of service and dividing by 15. As with the Increased Exemption, unless you fully or partially waive your right to a lump sum from your pension scheme, this exemption is reduced by either:

(i) Any tax free lump sum from the pension scheme to which you may be immediately entitled, or
(ii) The present day value at date of leaving employment of any tax free lump sum which may be received from the pension scheme in the future

Any decision you make to waive your right to a lump sum from your pension scheme is irrevocable.

Upper Limit on Redundancy Tax Free Lump Sums

No matter which of the three calculation methods is chosen, the amount of your redundancy payments (excluding statutory redundancy) that can be received tax free in your lifetime is €200,000.

Possible uses for your redundancy payments

Uses for your redundancy payments are likely to be driven by your circumstances – particularly on whether you are planning on resuming employment elsewhere or not. In rough order of priority, you may wish to calculate whether the redundancy payment along with other financial reserves you may have are adequate to provide for the following:

  • Maintaining a reasonable standard of living for your family until a new stream of income becomes available – for example from a pension or from new employment
  • Honouring any debt obligations you may have – you should talk to your lender and/or to the Monetary Advice and Budgeting Service (MABS) as early as possible if honouring your debts may be a problem, rather than waiting for your reserves to run down

    Monetary Advice and Budgeting Service

  • Preserving the more important benefits from your previous employment, such as life cover
  • Investing for the future, if you have a replacement income or adequate resources lined up to meet your other needs
  • The information contained in this website is for information purposes only. It should not be taken in any way as advice. It should not be relied upon as an offer to purchase or sell any of the products that are discussed.
  • The value of investments can go down as well as up.
  • Investments or products mentioned on this site may or may not be suitable for you.
  • Before investing or purchasing any product you should always seek independent financial advice. Mercer can provide independent financial advice if required.

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