Redundancy is always a sensitive and emotive matter. Employers are faced with the possibility of losing a very good employee in the face of financial difficulty, and employees are faced with the prospect of not having a job for the foreseeable future.
And yet, it's important the process is handled correctly, including the redundancy payment.
The redundancy payment
One key issue in any redundancy process is the redundancy payment due to the employee; it's essential that you calculate an employee’s entitlement correctly. By virtue of the Redundancy Payments Acts, if the redundant employee has more than 104 weeks service (i.e. two years) then they would be entitled to a statutory lump sum payment which consists of two weeks’ of their normal weekly salary per each year of service up to a maximum of €600 per week, plus a bonus week on top of that.
As most employers are unfortunately aware due to their own experiences, employers may claim 60% of this redundancy payment as rebate from the Government’s Social Insurance Fund.
Calculating the redundancy payment
Where the employee is full-time and they work consistent hours, their redundancy payment is a fairly straightforward calculation as it's quite clear what their normal weekly salary is. However, the matter has not always been so straightforward when it comes to employees who work variable hours.
This is largely because of an unfortunate error that has been noticed by Peninsula on the guidance being provided in the redundancy RP50 Form on websites from the Department of Jobs, Enterprise and Innovation, and the Department of Social Protection. Both Departments have been tasked with the processing of redundancies in Ireland this year and have been responsible for the payment of the redundancy rebate to employers.
To give some background, Schedule 3 of the Redundancy Payments Act identifies that, for the purposes of redundancy payments, a variable hours’ employee’s normal weekly remuneration for the purposes of redundancy shall be taken to be:
- The average weekly remuneration, including any bonus, pay allowance or commission, received by the employee concerned over the period of 52 weeks during which he was actually working immediately prior to the date on which he was declared redundant.”
However, the guidance notes provided to employers on the RP50, the official formal notice of redundancy given to the employee, and the form through which an employer claims their rebate, states that “irregular” hours by normal weekly remuneration shall be the payment:
- “Total pay over a 26 week period, 13 weeks before the date of Declaration of Redundancy is divided by total hours worked in that period to get an average hourly rate of pay which is then multiplied by the normal weekly working hours.”
Essentially, the Redundancy Payments Acts are asking that you base the employee’s normal weekly remuneration on the average weekly hours worked by the employee in the 52 week period prior to redundancy. The RP50 Form, on the other hand, had been asking employers to calculate the employee’s normal weekly remuneration by going back 13 weeks from the date of redundancy and then use the 26 week period prior to that to work out the average weekly remuneration. What is the importance of this distinction you ask?
Well, if employers were going by the RP50 Form guidance which is a perfectly normal thing to do, they would likely be paying out the wrong redundancy sum to employees.
In conclusion
Employees may have potentially lost out on a lot of money if employers were using the wrong reference period. Equally, employers may have been overpaying redundancy monies if the 26 week period that employers incorrectly used was a particularly busy period or was busier than normal, and the employee had been working more hours during that time.
In essence, the RP50 form had advised that employers to base the payment of redundancy on variable hours, a method that applies to shift-workers and piece-rate workers only.
Peninsula Business Services contacted the National Employment Rights Authority (NERA) in respect of the above and they affirmed there was an error on the RP50 Form and, together, steps will now be taken to ensure clients of Peninsula receive the above guidance and NERA will ensure that the RP50 Form issue is rectified. All-in-all, a positive outcome.
Accordingly, employers should note the above and review the method with which they would have calculated redundancy payments for variable/irregular hour employees in the past. Furthermore, it's the 52 week reference period that employers will need to utilise for such employees going forward.
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For further complimentary advice on calculating redundancy payments from an expert, call us any time day or night on 0818 923 923.
