Redundancy – A brief summary of issues that may arise

1. What is “redundancy” and in what circumstances can employees be made redundant?
“Redundancy” arises where an employer wants to reduce its total number of employees or wants to close down a business completely.
In the case of reduction of the number of employees this normally happens either because (a) the work of particular employees is no longer required or (b) the work of particular employees can be spread around other employees without taking on additional employees. Other examples include circumstances where the job changes and the job requires particular skills and/or qualifications which the employee does not have or the business moves to a new location.
2. Assuming a “redundancy” situation exists, are there any other considerations that any employer has to take into account?
Yes, the employees have to be selected for redundancy using objective and fair criteria. For example, selecting people for redundancy who had reached a certain age would be unfair because it is discriminatory on the grounds of age (Employment Equality Act, 1998-2004). Similarly, while it may be possible to use different criteria for different areas of a business the onus would be on an employer to show that there were objective reasons for applying such criteria.
3. What are the employee’s legal entitlements?
Employees selected for redundancy are entitled to:-
· (i) Notice, i.e. notification as to when their employment will end;
· (ii) A statutory redundancy payment (applies only to employees with over two years’ service).
In relation to notice, there are a number of different types of notice to which an employee may be entitled and in the case of each employee, you should pick the longest notice entitlement. Notice entitlements are:-
(a) Contractual Notice
If an employee has a written contract it should first be looked at to see the notice entitlement. Even if an employee has no written contract the employee is entitled by law to the following minimum notice:
Length of service under the Minimum Notice Act
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
(b) Statutory Redundancy Notice
Assuming the employee has over two years service with the employer, that employee is entitled to a minimum of 14 days notice of his or her redundancy.
Statutory redundancy payment
Any employee who has been in employment for over two years is entitled to such a payment. The amount of the payment is 2 weeks salary per each year of service.
There are two other important matters with regard to statutory redundancy and these are:-
(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 calculated above.
(b) The present statutory maximum is €600 per week, therefore the statutory redundancy payment is capped at this figure and any sum earned in excess of this is ignored.
The amount of any statutory lump sum due can be calculated through the website provided by the Department of Enterprise Trade and Employment at
4. Is the employee entitled to anything over and beyond the statutory redundancy payment?
Taking the example of an employee with six weeks notice, that employee is entitled to six weeks actual notice (the employer is entitled to have the employee work during this notice period or, by agreement, make a payment in lieu of this notice – pay in lieu should be paid “gross” to the employee without deduction of tax or PRSI) together with the payment at the end of the notice period of the statutory redundancy payment (provided the employee has over two years’ service).
Employees with less than two years service are not entitled to a statutory redundancy payment and are only entitled to notice.
Even though 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 very clearly stressed that any payment above statutory entitlement is “ex-gratia”, i.e. there is no legal obligation to make this payment unless there is some form of agreement, either express or implied to so do. As a very rough rule of thumb, employers can pay a sum equivalent to anything between two and six weeks pay per year of service on an ex-gratia basis.
In light of the recent improvements made to the level of the statutory payment, employers may seek to pay out less in ex-gratia amounts than they had done previously. Such a move would be likely to be resisted by employee representatives.
5. Is there any Government rebate in respect of redundancy payments?
Yes, the employer can a claim 60% rebate in respect of the statutory redundancy payment. However it is important that when employees are being made redundant that the appropriate statutory form being the RP50, is served on the employee. The Form RP50 replaces the old forms, the RP1, RP2 and RP3. The RP1 was for the purpose of providing notice of redundancy to an employee, the RP2 was given to the employee when leaving employment and the original had to be signed acknowledging receipt of the statutory redundancy payment. The RP3 was used by an employee to claim the rebate from the Social Insurance Fund. All of these functions are now incorporated in the new Form RP50.
6. Do employees have to be consulted in advance of a decision to make them redundant?
There is no statutory requirement for employers to consult with employees prior to the decision to make employees redundant. However, depending on the circumstances of the redundancies and the number of people being made redundant, it may be good industrial relations practice to consult in advance of the decision to make employees redundant.
7. From a tax perspective how is the redundancy payment to be taxed?
Firstly 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 is therefore taxable.
(b) Ex-gratia redundancy payment:- Excluding the notice and the statutory redundancy payment if there is any further payment being made to the employee as a redundancy payment, the employee should be entitled to further tax relief. There are two methods of calculating the tax-free entitlement known as the “basic” exemption and the SCSB calculation. Identifying which of the foregoing will be most beneficial for a particular employee will depend on that employee’s length of service and salary. The employee can opt for the calculation that gives them the greatest tax-free sum. Further advice in this regard should be taken either from the company’s tax advisers.
(c) Any additional benefit such as a car or lap top computer that may be given to an employee must also be included in any calculation for tax purposes.
8. What steps should be taken leading up to the proposed redundancies?
(a) Decide on the criteria that are going to be used to select the employees for redundancy.
(b) Consider whether the Protection of Employment Act, 1977 will apply, i.e. are there over 20 people employed by the company and are you making at least five of these employees redundant. If this Act applies then you will have to consult with the employees’ representatives and give the Minister for Enterprise Trade and Employment at least 30 days notice.
(c) Consider what payment you are going to make to the employees e.g. statutory entitlement only or additional ex-gratia sum.
(d) Outside of your obligations under the Protection of Employment Act, 1977, how are you going to make the announcement to employees. This is particularly important where the company is making a number of employees redundant. It is important to convey the message to the employees as quickly as possible.
(e) Where possible, employees should be spoken to individually rather than at a group meeting. If there are a number of employees being made redundant bear in mind the time that it will take to have individual meetings with employees.
(f) All relevant documentation should be prepared in advance and should include:-
(i) The necessary statutory forms (RP50/notification to the Minister)
(ii) A letter to the employee:
(a) Confirming the redundancy,
(b) Confirming the consequences of the redundancy, e.g. 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 to the employee and when the employee will get paid.
(c) 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.
(d) The letter should also set out any company property to be returned.
(e) Employees should be reminded of any continuing obligations such as the obligation of confidentiality if contained in their contract of employment or any other restrictive covenants.
(f) If an ex-gratia payment is to be made to the employee consideration should be given to include in the letter the terms on which the ex-gratia payment is being made, e.g. it may be in full and final settlement of all claims that the employee may have against the company arising out his or her employment or its termination.
(iii) The employee’s P45 (final tax form)
(a) Co-ordinate the preparation of all necessary information such as calculation of each employee’s net payment after deduction of tax and social insurance and taking into account their tax-free limits.
(b) Decide what should be said to each employee and make sure that any questions that the employee may have can be answered.

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