What Does Redundancy Mean?
Redundancy occurs when an employer no longer requires a particular role or position to exist within the company. This can happen for several reasons, including business restructuring, financial difficulties, a company closure or changes in how a business operates.
What Should You Do When You Are Made Redundant?
Before accepting a redundancy package, it is important to understand exactly what your employer is offering and whether it reflects your legal and contractual entitlements.
Meet with a Financial Advisor
Redundancy can have a significant impact on your income, savings and long-term financial plans.
A Financial Advisor can help you review:
- Your redundancy package and potential tax liability.
- Your monthly income and essential expenses.
- Your savings and emergency fund.
- Your pension and retirement plans.
- Your financial needs while you are out of work.
- Your options for managing or investing your redundancy payment.
Taking the time to understand your financial position can help you make decisions based on your circumstances, rather than acting immediately.
What Am I Entitled To?
Your redundancy package will depend on your length of employment, employment contract and the terms offered by your employer.
It may include several different payments, each of which can have different tax implications.
1. Statutory redundancy
Statutory redundancy is the minimum redundancy payment an eligible employee is entitled to under Irish law.
Generally, to qualify, you must have:
- At least two years of continuous service with the same employer.
- Employment that is fully insurable under the Social Welfare Acts.
- A role that genuinely no longer exists due to redundancy
2. Ex gratia redundancy payments
Some employers offer an additional payment on top of statutory redundancy. This is commonly known as an ex gratia payment, which is not automatically required by law. It may be offered as part of a voluntary redundancy programme or as an additional payment when an employee leaves.
The tax treatment can depend on factors such as:
- The amount of the payment.
- Your length of service.
- Previous termination payments.
- Whether the payment qualifies for a statutory exemption or other tax relief.
Other payments you may receive:
- Payment in lieu of notice (PILON) – This is a payment made instead of requiring you to work your notice period.
- Outstanding holiday pay – You may be entitled to payment for annual leave that you have accrued but not taken.
- Accrued bonuses or commission – You may be entitled to outstanding bonuses or commission.
- Discretionary payments – May get paid a notional amount to go towards professional fees
Can I Reduce the Tax I Pay on My Redundancy Package?
Consider a last-minute AVC
If you are still working in the company, you can make a last minute pension payment (for this year and last year).
A last-minute AVC should not be viewed as an automatic way to make a redundancy payment tax-free. It is something to discuss with a Financial Planner before making a decision.
Employment Investment Incentive Scheme (EIIS)
The Employment Investment Incentive Scheme, or EIIS, is a tax-relief scheme designed to encourage investment in qualifying companies.
What Are My Pension Options After Leaving?
- Leave your pension where it is
- Transfer to a new employer’s pension
- Transfer to a Personal Retirement Bond
- Consider a PRSA
What Other Benefits Could I Lose When I Leave?
- Death-in-service benefit
- Health insurance
- Income protection
What Should I Do After I Have Left?
- Register for Jobseeker’s support
Ireland’s Jobseeker’s Pay-Related Benefit is available to eligible people who become fully unemployed and satisfy the relevant PRSI and other conditions.
2. Review your monthly budget
Consider reviewing your mortgage, household bills, insurance, upcoming expenses and everyday savings.
3. Review your financial plan with a financial advisor.
Taking the time to seek appropriate legal, tax and financial advice can help you make informed decisions and protect your financial position during a period of change.
