Termination and Redundancy Payment Options
Redundancy payment considerations can be a stressful time in your life. We have helped many clients negotiate this difficult time period by providing impartial and independent advice at a vital time.
There are 3 methods of calculating how much of the (potentially taxable) termination payment that you can receive tax free.
The Basic Exemption is the minimum redundancy payment amount that the individual will receive tax-free. The amount is €10,160 plus €765 for each complete year of service with the employer. You obtain no benefit for part-years of service. An amount up to the basic exemption is tax-free and the employer can pay this without deduction of PAYE.
There are circumstances where you may be able to increase the basic exemption redundancy payment by a maximum of €10,000. This applies where:
- you have made no claim for relief in respect of a previous redundancy lump sum payment within the previous 10 years
- you have not received, or are not due to receive, a tax-free lump sum, under an approved superannuation scheme related to the employment. If you have received a tax-free lump sum of less than €10,000, or are due to receive one from the pension scheme, the increased exemption will be: €10,000 less the current value of the tax-free lump sum
Standard Capital Superannuation Benefit (SCSB)
The basic or increased exemption for redundancy payments may be increased further, to an amount called the Standard Capital Superannuation Benefit (SCSB). To calculate the amount of termination payment receivable tax-free, first, average of all emoluments e.g salary, bonus, benefits in kind, over the previous 36 months of service. Then multiply this average by the number of complete years of service in the employment. Then divide the resulting figure by 15. If you receive, or are due to receive, any tax free lump sum under any approved superannuation benefit, then this must therefore be deducted from the tax free amount, or the employee may waive this entitlement to the pension lump sum.
Life time limits
There are life time limits on relief for termination payments. This is the LOWER of: €200,000 and the highest of the following:
- the basic exemption
- the increased exemption
- the standard capital superannuation benefit (SCSB)
The definition of lifetime limit includes payments made on account of death or disability of the employee. For redundancy payments advice specific to your circumstances, feel free to contact us.
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