Redundancy in Ireland: What You Need to Know

Redundancy can be a stressful time, but understanding your entitlements can help you navigate the process with more confidence. In Ireland, redundancy payments are governed by employment law and Revenue rules, with a mix of statutory and discretionary components, along with certain tax exemptions.

1. Statutory Redundancy

If you’ve been employed continuously for at least two years (104 weeks) with your employer, you may qualify for a statutory redundancy payment. The statutory amount is:

  • Two weeks’ pay for every full year of service,

  • Plus one additional bonus week,

  • Capped at €600 per week.

This statutory redundancy payment is completely tax-free, with no deductions for Income Tax, PRSI, or USC.

2. Additional (Ex-Gratia) Payments and Tax Exemptions

If your employer pays an enhanced redundancy (ex-gratia) on top of the statutory amount, this additional payment may also qualify for tax relief, depending on your circumstances. Revenue allows for three types of exemptions:

a. Basic Exemption

A tax-free amount of €10,160 plus €765 for each full year of service.

b. Increased Exemption

You may claim an additional €10,000, but this is reduced by the value of any tax-free lump sum from a pension scheme (received or expected).

c. Standard Capital Superannuation Benefit (SCSB)

This formula-based exemption is often more beneficial for long-serving, higher-paid employees with pension entitlements. It considers your average earnings over your last 36 months and your service history.

You can use only one of these exemptions. A lifetime tax-free cap of €200,000 applies to ex-gratia termination payments.

(Average annual pay × years of service ÷ 15)
− tax-free pension lump sum received

3. PILON – Payment in Lieu of Notice

PILON refers to pay in place of working out your notice period. If your contract allows for this, you’ll be paid for the notice period without having to work.

  • PILON is taxable as normal income — subject to Income Tax, PRSI, and USC.

  • It does not qualify for redundancy tax exemptions.

4. Unused Holiday Pay

If you have accrued but unused annual leave, you are entitled to be paid for those days when leaving employment.

  • This payment is also treated as normal taxable income, with full deductions for tax, PRSI, and USC.

5. Entitlement to Jobseeker’s Benefit

After being made redundant, you may be eligible to claim Jobseeker’s Benefit (or the new Jobseeker’s Pay-Related Benefit).

You must:

  • Have paid enough PRSI contributions, and

  • Be available for and actively seeking work.

7. Practical Example

  • Example: You have worked for 10 years, earning €550 gross weekly.

    • Statutory part: 2 × 10 = 20 weeks + 1 week = 21 weeks × €550 = €11,550, fully tax-free.

    • Ex‑gratia: Suppose you receive an extra €20,000.

      • Basic exemption: €10,160 + (10 × €765) = €17,810.

      • The remaining €2,190 is taxable. Or, if you qualify for increased or SCSB relief, the taxable portion may be lower.

SCSB Redundancy Tax Exemption Example

Scenario:

  • Employee earns a salary of €50,000 per year

  • Has worked 15 full years with the company

  • Receives an ex-gratia redundancy payment of €45,000

  • Has a pension lump sum entitlement, tax-free, of €20,000

Step 1: Calculate Average Annual Remuneration

SCSB uses your average pay from the last 36 months (3 years).

Assume consistent annual pay:

Average annual remuneration = €50,000

Step 2: Apply the SCSB Formula

The formula is:

(Average annual pay × years of service ÷ 15)
− tax-free pension lump sum received

So:

  • (€50,000 × 15) ÷ 15 = €50,000

  • Subtract pension lump sum: €50,000 − €20,000 = €30,000

Under SCSB, €30,000 of the €45,000 ex-gratia payment can be tax-free

Step 3: Compare to Basic Exemption

Let’s also check what the Basic Exemption would offer:

  • €10,160 + (€765 × 15) = €10,160 + €11,475 = €21,635

  • With Increased Exemption, potentially +€10,000

So:

  • Basic Exemption = €21,635

So, SCSB offers the higher tax-free allowance: €30,000

Step 4: Tax on Remaining Ex-Gratia Payment

  • Total ex-gratia: €45,000

  • Tax-free under SCSB: €30,000

  • Taxable portion: €15,000

    • This is subject to Income Tax, USC, and PRSI

Income Tax (40%): €6,000

  • USC (4.5%): €675

  • PRSI (4%): €600

Total Tax: €7,275

Net Payment (after tax): €7,725

So from the €15,000 taxable portion of the redundancy, the employee would take home €7,725.

David Murphy