REDUNDANCY PAYMENTS

In addition to payment of compensation to employees who are dismissed because

of redundancy or natural disaster the Severance Payments Act provides for payment of
compensation to employees who terminate their contract of employment after a period of lay-off
or short-time.

Lay-off refers to a temporary interruption of work which occurs as a result of an

employee not being provided with work of the kind that he was employed to do in circumstances
where the remuneration of the employee depends on his being provided by the employer with
work of that kind.

Short-time refers to an employee receiving less than half of a week’s pay due to a
shortage of work.

Put simply, for the purposes of severance lay-off involves loss of an entire week’s
remuneration due to lack of work while short-time involves a shortage of work leading to the
employee earning less than half a week’s pay.

Where an employee has been laid off or kept on short-time for 13 or more consecutive
weeks; or a series of 16 or more weeks of which all fall within a period of 26 weeks he qualifies
for a severance payment. However, he must terminate his contract of employment by giving the
employer one week’s notice or the minimum period of notice that he is required to give under his
contract and he must serve written notice to his employer that he intends to claim a severance
payment for being laid off or kept on short-time. The notice must be given within 4 weeks of the
lay-off or short-time or the combination of both which entitles him to a severance payment.

The current rate of severance is as follows:-

1. 2.5 weeks basic pay for each complete year of employment up to 10 years.

2. 3 weeks basic pay for each complete year of employment by which the employment
exceeds 10 years but does not exceed 20 years; and

3. 3.5 weeks basic pay for each complete year of employment by which the employment
exceeds 20 years but does not exceed 33 years.

Basic pay is defined as the insurable earnings of an employee as calculated in the

National Insurance and Social Security (Collection of Contributions) Regulations.

Complete year of employment means the period of 52 weeks which count towards the
computation of a period of employment.
 In determining the insurance earnings of an insured person Regulation 14 says that there
shall be included all gross wages or other remuneration received in cash and in kind by the
insured person including.

(a) overtime payments;

(b) cost of living bonus;
(c) family allowances;
(d) supplements or rewards for long service, industry or efficiency;
(e) commission on sales, or profits on sales;
(f) gratuities paid out by the employer;
(g) danger or dirt money;
(h) payments on account of night or shift work;
(i) production bonuses;
(j) payments in kind; and
(k) holiday pay and amounts set aside out of the insured person’s remuneration
throughout the year or part of the year to be paid out to the insured person
periodically”.

In calculating severance payment an employee is entitled to payment on the basis of his

basic pay plus allowances as described above.

Once the requirements of the law are met and the employee is found to be entitled to a
severance payment it is the responsibility of the employer to compensate the employee.
However, if the employer refuses or is unable to do so because of insolvency or inability to make
the payment the employee is paid from the Severance Fund. If an employer makes the payment
he is entitled to a rebate of 25% of the sum paid from the Severance Payment Fund.

A hypothetical example can assist with the understanding of the above scheme.

You should also bear in mind that “basic pay” means the insurable earnings of an
employee calculated in accordance with regulation 14 of and the Schedule, to the National
Insurance and Social Security (calculation of Contributions) Regulations, 1967.

Let’s assume that an employee commenced employment on the 1st March 1988 and was
dismissed because of redundancy on March 5, 2010 and his pay for the last 104 weeks of his
employment was at the rate of $400.00 per week.
To calculate his severance pay you must first specify the 104 week period.

In the above case it would be the last 104 weeks of his employment.
 His total insurable earnings amount to $41,600.00 (i.e. 104 x 400) based on the average
weekly wage of $400.00. The total severance payment for 22 years would, therefore, be $400 x
62= $24,800.00 representing 25 weeks for the first 10 years, 30 weeks for the second 10 years
and 7 weeks for the last 2 years.

This is a very simple illustration. Sometimes the basic pay over the 104 week period will
vary significantly for different sections of the 104 week period. Very often a person will be paid
monthly. In that event the calculation would be converted to a weekly basis as is done with
National Insurance contributions.