In the current climate, both employers and employees are facing the difficult realities of redundancy. In this regard there are a number of questions where all parties need clarification.

What is “redundancy” and when can employee be made redundant ?

Redundancy arises where an employer is forced to reduce its total number of employees or is compelled to close down a business completely.

In the case of reduction of the number of employees this normally occurs because either the work of particular employees is no longer required to run the business or the work of particular employees can be spread around other employees without hiring additional employees.

What are the employee’s legal entitlements ?

Employees are entitled to the following:

- Notice of redundancy
- A statutory redundancy payment which only applies to employees with over   two year’s service.

What is the employee’s notice entitlement ?

The employee’s contract of employment usually defines the notice entitlement. Where an employee’s contract has no written period of noticethe employee is entitled by law to the following minimum notice.

13 weeks to 2 years – 1 week
2 to 5 years – 2 weeks
5 to 10 years – 4 weeks
10 to 15 years – 6 weeks.

What is Statutory Redundancy ?

An employee who has over two years service with an employer is entitled to Statutory Redundancy.

The Statutory amount of payment is two weeks salary per year of service. However;

(a) Every employee that is entitled to a statutory redundancy payment is entitled to an extra or bonus week in addition to the basic payment, and

• The present statutory maximum is €600 per week. Any sum earned in excess of this is ignored in the redundancy payment calculation.

Is the employee entitled to anything over and beyond the statutory redundancy payment ?

Employees with less than two years service are not entitled to a statutory redundancy payment and are only entitled to notice. Where an employee is entitled to statutory compensation for being made redundant it is common for employees to be paid in excess of their statutory entitlement.

The extent to which an employee is paid in excess of their statutory entitlement depends on the industry or the particular employer. It has to be clearly stressed that any payment above the statutory entitlement is “ex gratia” i.e. there is no legal obligation to make this payment unless there is some form of agreement with the employee that has to be honoured.

What is the Government rebate in respect of redundancy payments ?

In respect of the statutory redundancy payment the employer can reclaim up to 60%. However it is important that when employees are being made redundant that the appropriate statutory form, the RP50, is served on the employee and acknowledged in writing on receipt by the employee. The RP50 replaces the old forms being the RP1, RP2, and RP3.

What tax is payable on redundancy payments ?

The Statutory Redundancy payment can be paid tax free. With regard to any sum paid over and above the Statutory entitlement the following needs to be considered.
(a) Notice period – this is a contractual entitlement and therefore is taxable.
(b) Ex-gratia redundancy payment – in addition to the notice and Statutory Redundancy payment if there is any further payment being made to the employee as a redundancy payment it must be taxed. However there are attractive tax relief available but these require specialised knowledge and calculation.
(c) Any additional benefit such as a car, laptop computer must also be included in any calculation for tax purposes.

What steps should be taken leading up to the proposed redundancies ?

1. Decide on the criteria that are going to be used to select redundant areas or activities.
2. Consider what payment you are going to make to employees e.g. statutory entitlement or additional ex-gratia sum.
3. Decide how you are going to make the announcement to employees. This is particularly important when a company is making a number of redundancies. It is important to convey the message as quickly as possibly and normally on a one to one basis.
4. Have all relevant documentation prepared in advance which should include.
   • The necessary statutory forms (RP50)
   • A letter to the employee - confirming the redundancy and also confirming the consequences of the redundancy whether the employee will be required to work out the notice period, what date the employee will actually cease employment, whether an ex-gratia payment will be made, and when the employee will get paid
5. Attached to the letter should be a detailed calculation of the gross figures setting out the tax deductions, the tax exemption limits and finally the cash in hand payment that the employee will get.
6. The letter should set out any company property to be returned including keys, passwords, company documentation, files and records etc
7. Employees should be reminded of any continuing obligations such as confidentiality if contained in their contract or any other restrictive covenants.
8. The employee should be given a completed P45 form (final tax form)
9. Finally decide what should be said to each employee and make sure that any questions the employee may have can be answered.