Working for Work : Chapter 2 : Coping with Poverty

Redundancy

Under the Redundancy Payments Act of 1967-1991 employers must, by law, pay compensation to employees dismissed for reasons of redundancy. The amount of the statutory payment is related to the employee's length of service, normal weekly or monthly earnings (including basic salary, regular overtime, payment-in-kind) up to a weekly maximum of €600 per week.

Redundancy Applies when;

• An employer ceases to carry on business.
• An employer's requirements for employees has ceased or diminished.
• An employer has decided to carry on the business with fewer or no staff. In this case, close members of the employer's family are not taken into account.
• An employer has decided the work is to be done in a different manner in future and the employee is not sufficiently qualified or trained to do the work in the required manner.

Qualifying for a Redundancy Payment

Not all employees are entitled to the statutory redundancy payment, even where a redundancy situation exists. To be eligible for a payment under the Redundancy Acts, the employee must satisfy the following requirements:

• Be aged over 16 years of age. -
• Be in employment that is insurable for all benefits under the social welfare system (PRSI Class "A"). -
• Have worked continuously for the employer for at least 104 weeks. -
• Have been in continuous employment for more than two years if a Part-time worker. -
• The same rules apply to apprentices. Apprentices qualify for redundancy unless let go within one month of completing an apprenticeship.

Employers must give proper written notice of redundancy of at least two weeks, the minimum period, to both the employee and to the Department of Enterprise, Trade and Innovation. During this period, an employee should be given reasonable time-off to look for other work. T

he amount paid in redundancy relates to the employee's length of continuous service and weekly earnings up to a maximum of €600 per week.

How are Redundancy payments calculated?

Under the Redundancy Payments Bill 2003, employees are entitled to: -

• Two weeks pay for each year of employment. -
• A bonus week's pay. -
• The payment is normally calculated on earnings at the time of the redundancy*

 

Example:

You are aged 45 and are being made redundant. You have worked for your employer for ten complete years. Your statutory redundancy payment will be calculated as follows: -- Two week's pay x 10 20 weeks -- Plus one week's bonus pay + 1 week Total Statutory Entitlement 21 weeks pay

 

* If you were made redundant within a year of being put on reduced hours or pay, your redundancy payment would be based on your earnings for a full week. If you are made redundant after working reduced hours for more than a year, how your payment will be calculated depends on whether you accepted being on reduced hours or not. If you fully accepted the reduced working hours as your normal week and never asked to return to full-time work, then your redundancy payment will be based on your gross pay for the reduced working hours. If, on the other hand, you never accepted the reduced working hours as your normal hours and continually asked to be put back on full-time working, your payment would be based on your normal weekly earnings.

The employer must pay the lump-sum directly to the employee. Any lump-sum payable does not depend on the redundancy payment rebate that the employer is expecting to receive from the Department of Enterprise, Trade and Innovation.

Redundancy Payments and Tax

The basic statutory redundancy payment is not subject to tax. Any amount over the basic statutory redundancy payment may be subject to tax (subject to the following exemptions)

Basic Exemption

There is a basic exemption of €10,160, plus €765 for each complete year of service.

 

Example:

Joe is 45 and is being made redundant. He has worked for the employer for 12 years. His redundancy payment is €27,000: Total Redundancy Payment: €27,000 Statutory Entitlement -- Two week's pay X 12 years 24 weeks -- Plus one week's bonus pay + 1 week Total Statutory Entitlement 25 weeks pay Total Statutory Amount (25 weeks x €600) Tax Free €15,000 Additional Payment Ex-gratia/extra payment €22,000 -- Basic Exemption €10,160 -- Basic Exemption (at €765 for each years service x 12) +€9,180 Total Basic Exemption €19,340 *Amount liable for tax (€22,000 - €19,340) €2,660

*As Joe has been working for 12 years, he will probably also qualify for the Increased Exemption - as explained below. So more than likely Joe will not pay any tax on his total Redundancy payment.

 

Basic Exemption plus Increased Exemption

An additional €10,000, called the Increased Exemption, is also available in the following certain circumstances: -

• If you have not received a tax-free lump sum in the last 10 years -
• If you have never received a tax-free lump sum and you are not getting a lump sum pension payment

For further information in relation to taxation of Redundancy Payments please contact the Central Telephone Information Office of the Revenue Commissioners at 1890 60 50 90 or the INOU on (01) 856 0088.

Voluntary Redundancy

Voluntary Redundancy occurs when an employer, faced with a situation where s/he requires a smaller workforce, asks for volunteers for redundancy. The people who then volunteer for redundancy are, if they fulfil the normal conditions, eligible for statutory redundancy. There must be a genuine redundancy situation in the first place. Persons who take a voluntary redundancy are entitled to claim Jobseeker's Benefit, and cannot be disqualified from seeking to claim Jobseeker's Benefit because they volunteered for redundancy.

Redundancy Forms

RP50 Form (Download Form HERE)

In a redundancy situation the employer should give the employee a Redundancy RP50 Form on the date of payment. This form should show the basis on which the sum was calculated. A copy of the form containing an original signature of both employee and employer in blue ink, should also be sent to the Department of Enterprise, Trade and Innovation.

When calculating any entitlement to a redundancy payment your continuity of employment is an important consideration. As previously stated, an employee must have worked continuously for an employer for at least 104 weeks to be considered in continuous employment.

If you have been absent from employment under the following conditions it will not be considered a break in the continuity of your employment; -

• Sick leave for 26 weeks or less, occupational injury for 52 weeks or less, maternity leave for 26 weeks or less and career breaks of 13 weeks or less. -
• The following situations will not break the continuity of service: -
• Absent from work through illness for not more than 78 weeks. However, if absent through sickness for more than 78 weeks, the continuity of service will not automatically be broken. There is a presumption that the continuity of service remains and it will be for the employer to prove otherwise. -
• Maternity/adoptive/parental or carer's leave. -
• Dismissed due to redundancy before reaching 104 weeks service then taken back by employer within 26 weeks of that dismissal. -
• Re-employed within four weeks of dismissal by an associate company of previous employer. -
• Voluntarily transferred to another employer and it is agreed that the continuity of service will not be broken. -
• Placed back in employment under the Unfair Dismissal legislation. -
• Lay-offs, strikes or lock out of your employment. -
• A transfer of the business to a new owner.

When the actual dismissal takes place the employee must be given the RP50 form. In the event that an employer refuses or fails to pay an entitled employee the statutory redundancy payment and all reasonable courses of action have been exhausted, he/she can apply to the Department of Enterprise, Trade and Innovation for payment. The Department pays the full amount direct to the employee from the Social Insurance Fund (S.I.F.).

RP9 Form (Download Form HERE)

The RP9 Form is used where a short-time or lay-off situation has arisen. The Employer fills out section A of the form to notify an employee of a temporary short-time or lay-off. Part B is filled out by the Employee notifying the Employer of their intention to claim redundancy based on their short-time or lay-off situation.

Department of Enterprise, Trade and Innovation

For further information on Employment Rights or Redundancy Payments contact the National Employment Rights Authority (NERA) on 1890 80 80 90 or visit their website on www.employmentrights.ie.

Employment Appeals Tribunal

Disputes concerning redundancy payments can be submitted to the Employment Appeals Tribunal (lo-call 1890 220 222), which has the advantage of providing a speedy, fair, inexpensive and informal means for individuals to seek remedies for alleged infringements of their statutory redundancy rights. The Tribunal also deals with disputes under such other labour law areas as the Minimum Notice and Terms of Employment Acts, 1973 to 1991.

These cover the right of workers to a minimum period of notice before dismissal, provided they are in continuous service with the same employer for at least 13 weeks and are normally expected to work at least 8 hours per week. The Tribunal also deals with the Unfair Dismissals Acts, 1977 to 1993 and the Protection of Employees (Employers' Insolvency) Acts, 1984 to 1991 (dealing with such areas, amongst others, as arrears of pay due to an employee, holiday and sick pay etc.) where the employer is insolvent.

Last Updated: 05/10/2011 ^ back to top