Unfortunately businesses are still under considerable pressure to reduce costs and keep a tight rein on cash flow. Often salaries and payroll are the most expensive overheads and if a business is experiencing serious trading or cash flow problems it may be left with no option but to reduce the workforce to secure its future. Any severance programme requires careful tax planning; if redundancy schemes are not administered properly there can be serious financial implications for both the employee and employer. This is also a highly regulated area and employers need to ensure they are totally compliant.
Legislation provides for a statutory redundancy payment to employees which is tax free. To be eligible the employee must be making PRSI contributions under class A and have worked continuously for the employer for at least two years. The amount of redundancy payment is determined by the employee’s length of continuous service and weekly earnings.
NON-STATUTORY REDUNDANCY PAYMENTS
Severance payments to employees which exceed the statutory amounts are not tax free but they do qualify for tax relief. However there are a number of conditions which need to be met and, in some circumstances, prior approval from Revenue is required or income tax relief may be claimable after the end of the tax year. In general the calculations of exemptions and reliefs are complex and detailed; we take an individual approach with our clients and devise the most tax efficient option for each situation.
We work with our clients, whether corporate entities or private businesses, in these difficult situations:
- Calculating tax-free payments on terminating employment
- Maximising the tax efficiency of severance packages for departing employees and executives
- Seeking appropriate approval from the Revenue Commissioners
- Submitting rebate claims
- Liaising with pension providers