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What Happens if You Can’t Afford an Employee Redundancy Payment?

Over the last 7 years, a significant number of companies have faced financial difficulty, often necessitating making employees redundant. However, it is often the case that the employer can’t even afford to pay the employee redundancy payment given the financial position of the business. So what happens here?

Employee Redundancy Payment Entitlements

Pay An employee is entitled to redundancy pay by virtue of Schedule 3 of the Redundancy Payments Acts. If an employee is made redundant then they qualify for statutory redundancy pay if they have 104 weeks’ continuous reckonable service or more with the employer in question.

Statutory redundancy pay amounts to two weeks’ pay per each year of service, plus one bonus week. Thus, if an employee has exactly 3 years’ service they are entitled to [(3 years x 2 weeks) + 1 bonus week] = 7 weeks redundancy pay. The weekly pay is based on the normal weekly wage earned by that employee during their employment, including commission or other varied payments, but it is subject to the statutory ceiling of €600 per week. Thus, if the employee with 3 years’ service earned €800 a week then their statutory redundancy is capped at (7 weeks x €600) = €4200. Any part years’ service should be included on a pro rata basis when calculating the employee’s redundancy entitlement.

Inability to Pay the Redundancy

Payment Given the financial climate of recent times, more and more companies are finding the need to inform their employees to claim redundancy through the Social Insurance fund. This situation arises when the company does not have enough financial means to pay the redundancy lump sum payment. Once an employee is formally being made redundant, the employer must pay your employee the lump sum on this date.

If you do not have the financial means to pay the lump sum payment, then the employee can apply to the Department of social Protection for direct payment from the Social Insurance Fund. The employee should complete and sign the RP50 form which is still required under the Redundancy Payments Acts. The employer should also submit evidence verified by a suitable person, such as an accountant or solicitor, which verifies that the employer has an inability to pay the redundancy lump sum (e.g. an audit of accounts). The employer should state that they are unable to pay and request that the payment be made from the Social Insurance fund.

It is worth mentioning that seeking recourse under the social insurance fund, will only pay the redundancy statutory lump sum payment and not the notice period, annual leave or public holiday entitlements due to the employee cessation of their employment.

Once your employee has enough social insurance contributions they may be entitled to job seekers benefit. If they do not have enough PRSI contributions you may qualify for Job Seekers Allowance which is a means-tested benefit.

If a company has been liquidated or is in receivership, the completed RP50 should be send in by the liquidator or receiver on behalf of the employees.

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