Know your redundancy rights

Volcanic ash is not the only thing darkening Irish skies lately, as the cloud of economic gloom continues to hang over the country.

In the 12 months to the end of April, there was a jump of more than 13 per cent in the number of people signing on, an increase of close to 51,000.

However, according to the latest figures from the Central Statistics Office (CSO), the number of people signing on the live register fell slightly last month.

The CSO’s latest figures, which were published on Friday, showed that a total of 432,500 are signing on in Ireland, a drop of 500 between March and April.

While the figures may indicate a marginal improvement on the jobs front, the harsh reality is that many workers still feel they are walking a precarious tightrope above an abyss called unemployment.

Redundancy

For the thousands of people who have lost their jobs or who fear losing them, knowing their rights is very important.

Some companies have opted for a range of alternatives to try to stave off the redundancy solution. Temporary lay-offs, shorter working hours and unpaid leave are all being considered as struggling businesses try to cut their salary bill.

Typically, employers must provide adequate notice for workers i f they intend to change their working arrangements.

Also, those who find themselves laid off or on short-time working may be entitled to jobseeker’s benefit or jobseeker’s allowance, subject to meeting certain criteria.

However, in some cases, new working arrangements aren’t enough, and employers feel they have no choice but to make staff redundant.

Redundancy can occur in a number of ways. The employer can decide to close the business or shut down operations in a specific location, or the company can decide that staff in a particular category are no longer needed.

Entitlements

The Redundancy Payments Acts 1967-2007 provide employees with a minimum entitlement to statutory redundancy payments.

To qualify, the employee must be between 16 and 66 and have been with the employer for more than two years.

Absences such as holidays, illness, maternity leave and parental leave do not qualify as breaks in employment, but if a worker was on strike or absent for more than 52 weeks due to an injury at work, or 26 weeks due to illness in the past three years, these periods do not count towards service.

Employees who are made redundant are usually entitled to a lump-sum.

Eligible employees are entitled to at least two weeks’ pay per year of service, plus one bonus week.

This is based on gross pay, meaning current normal weekly pay before tax and PRSI deductions.

Pay is capped at €600 a week for the statutory payment, but employers may make an additional payment if they wish.

If an employer is unable to make redundancy payments – or fails to do so – the Department of Enterprise, Trade and Employment will step in and make a payment from the Social Insurance Fund.

Tax relief

Statutory redundancy payments are exempt from taxation, but you may be eligible for a number of other tax reliefs.

Tax may be due on an additional top-up – or ex-gratia – payment from your employer.

Ex-gratia payments may include an additional lump-sum, payment in lieu of notice or the gift of a company asset, such as a car or laptop. If your employer gives you an asset, the current market value of the item is taxable.

However, given the depressed prices for most assets, this market value rule could work to an employee’s advantage when negotiating a redundancy package, due to the lower taxable amount that could be due.

There are three types of relief for ex-gratia payments. A basic exemption of €10,160 plus €765 per full year of service applies to any lump-sum received above the statutory amount.

If you are not a member of the company’s pension scheme or if you waive your right to receive a tax-free lump-sum from your occupational pension scheme, an increased exemption limit can be granted of €10,000 increase over the basic exemption.

The third type of relief is standard capital superannuation benefit (SCSB),which calculates the amount of your lump-sum exempt from tax based on a formula that looks at your average salary for the last three years and the number of years of full service.

Typically, this is of most benefit to long-standing employees and those with higher incomes.

People who receive a redundancy payment may also be entitled to ‘top slicing relief’.

This reduces the tax rate applied to the taxable element of an ex-gratia payment to the average tax rate paid by the employee over the previous three years.

Pensions

People being made redundant have a number of pension choices, including leaving their pension benefits in the existing scheme or transferring them to a new employer’s scheme.

However, the treatment of pensions would change if the company is being wound up.

In this case, the value of a person’s pension could be transferred to a buy-out bond, a type of lump-sum investment policy for pension transfers.