We have faced a lot of challenges and adversity in recent years, we have come through a pandemic, and now we are battling our way through an inflation crisis, and we may have an impending recession to deal with if the global economy continues to suffer.
But in Ireland, one thing has stayed constant, and that is our laws on what a company’s statutory obligations are when they make their staff redundant.
In this blog post, I will illustrate just how out of-date these rules are.
Current Statutory Redundancy Rules
Currently the statutory redundancy rules are as follows:
Not everyone will qualify for the statutory redundancy payment, you will need at least 2 years (104 weeks) of service with the company before you will qualify.
If you are eligible then you will be entitled to 2 weeks’ pay per year of service plus an additional bonus week’s pay.
For the purposes of your calculation your weekly pay will be capped at €600.
How the Statutory Redundancy Rules are Out of Date
We are currently seeing huge layoffs by large tech giants such as Meta and Twitter.
While large companies such as these are likely to pay decent severance packages to their staff, these layoffs will have a trickle-down effect on small and medium-sized companies, which may choose not to pay more than their statutory obligations.
The average weekly earnings were €871.62 in Q2 2022, which is well above the €600 cap that we routinely use for any statutory redundancy payments. Workers can justly feel like they are being hard done by as a result of this €600 cap.
I prepared an exercise to see how much of a shortfall workers are experiencing, compared to if the calculation was calculated using the average weekly wage in Ireland.
| Years of Service | Statutory Redundancy Calc | Using Avg Wage of €871.62 | Variance |
|---|---|---|---|
| 2 | €1,800 | €2,615 | €815 |
| 3 | €4,200 | €6,104 | €1,904 |
| 4 | €5,400 | €7,848 | €2,448 |
| 5 | €6,600 | €9,592 | €2,992 |
| 6 | €7,800 | €11,336 | €3,536 |
| 7 | €9,000 | €13,080 | €4,080 |
| 8 | €10,200 | €14,824 | €4,624 |
| 9 | €11,400 | €16,568 | €5,168 |
| 10 | €12,600 | €18,312 | €5,712 |
We can see clearly from the table that the difference is quite material, especially the longer the time of service is.
A person who has been with the company (and earns the average wage in Ireland), they will see a shortfall of €815. Essentially the employee is only receiving a 2-week payout in real terms and not the 2 weeks + 1 bonus week pay as promised under the Redundancy Act.
The further out in time we go, the bigger this shortfall becomes, with employees with 10 years of service potentially getting hit with a shortfall of €5,712.
While I don’t wish to put any additional burden on Irish companies that are already struggling with rising costs, it is up to the government to protect workers who face layoffs.
It is time that the Redundancy Act was reviewed, in light of the rapidly changing economic conditions, and a plan was put in place to protect workers who are laid off.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.