1. Introduction

The calculation of the statutory redundancy payment is, in principle, a mechanical exercise: two weeks’ pay per year of service, plus a bonus week, subject to the weekly pay cap. In practice, the calculation gives rise to recurring issues of detail that can produce material differences in the final figure.

This article addresses the practical mechanics of the calculation, the recurring areas of difficulty, and the leading authorities.

2. Legislation and Case Law

Section 7(2) of the Redundancy Payments Act 1967 defines redundancy. The provision identifies five circumstances in which a dismissal is by reason of redundancy: where the employer has ceased or intends to cease to carry on the business; where the employer’s requirements for employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish; where the employer has decided to carry on the business with fewer employees; where the employer has decided that the work shall henceforth be done in a different manner for which the employee is not sufficiently qualified or trained; or where the employer has decided that the work shall henceforth be done by a person who is also capable of doing other work for which the employee is not qualified or trained.

The calculation formula under Section 7(2A) of the Redundancy Payments Act 1967 is straightforward in outline. Reckonable service is multiplied by two; one bonus week is added; the resulting number of weeks is multiplied by the weekly pay figure (subject to the cap of €600 per week).

Reckonable service is service from the age of 16 to the date of dismissal, subject to the continuous service rules in Schedule 3 of the Act. Periods of leave generally count; periods of lay-off may count in certain circumstances; periods of strike or lock-out are typically excluded.

Weekly pay is calculated by reference to the relevant reference period, generally the 13 weeks preceding dismissal. For employees with variable pay, an averaging approach is applied. Section 8 of the Redundancy Payments Act 2003 and the Redundancy Payments (Amendment) Acts have refined the calculation methodology over time.

The weekly pay cap operates as a fixed limit. Where actual weekly pay exceeds the cap, the cap is used; where actual weekly pay is below the cap, the actual figure is used. 

3. Decision

WRC decisions on redundancy calculation issues typically address one of three areas: the proper calculation of reckonable service; the proper calculation of weekly pay; or the application of the cap.

On reckonable service, common issues include the treatment of periods of leave, the aggregation of service following dismissal and re-employment, and the treatment of transfers under the TUPE Regulations.

On weekly pay, common issues include the treatment of variable remuneration (overtime, commission, bonuses), the proper choice of reference period in cases of recent changes in pay, and the treatment of benefits in kind.

On the cap, the application is generally mechanical. The cap operates by reference to gross weekly pay. The cap has been revised periodically and is currently €600 per week; practitioners should verify the operative cap at the relevant date.

4. Takeaway

For employers, the practical mechanics of the calculation should be embedded in payroll and HR systems. Where the calculation gives rise to ambiguity, professional advice should be obtained at an early stage; an error in the calculation may give rise to a complaint.

Documentation of the calculation should be provided to the dismissed employee. A clear breakdown of reckonable service, weekly pay, and the resulting figure will reduce the scope for subsequent disputes.

For employees, the calculation should be verified independently. Errors in continuous service, weekly pay, or application of the cap are common, particularly in respect of employees with long service or variable remuneration.

Practitioners should also consider the interaction with tax. The statutory lump sum is, in general, tax-free. Any contractual or ex gratia element may be subject to particular tax treatment under the termination payment provisions of the Taxes Consolidation Act 1997.

5. Further information

This article was prepared for informational purposes only. For further advice, please email enquiries@crushell.ie or contact the offices of Crushell & Co Solicitors.

6. About Crushell & Co

Crushell & Co is a specialist law firm focused on protecting and advancing the rights of employees in Ireland. We offer a nationwide service, advising individuals on a wide range of legal and regulatory issues arising at work, including employment law, employment immigration and workplace accidents and injuries.

We help employees understand their position and options by translating complex legal issues into clear, practical advice. Our approach is tailored to each client, ensuring that our strategy is aligned with their personal and professional circumstances.

Connect: @CrushellLaw or www.crushell.ie