Employer suggesting incorporating pay in lieu of notice with redundancy payment?

sexmag

Hi,

I'm aware of a redundancy situation, this persons contract states they are to be given 12 weeks notice of cease of employment and payment in lieu.

They are being offered a couple of weeks per year of service and this incorporates they're pay in lieu of notice so they will leave shortly

I'm aware that pay in lieu is taxable but as this will be part of their redundancy it will not be taxed.

Is this legal or tax avoidance by the company?

Thanks

Calahonda52

from here:
http://www.citizensinformation.ie/en/employment/unemployment_and_redundancy/redundancy/redundancy_payments.html

you need to figure out how much is statutory redundancy and how much is not, the former portion is non taxable, the latter is.

In the event that the statutory plus the payment in lieu is less than the max tax free statutory then....

What I don't know is how payment in lieu works in relation to PRSI payments.

12 weeks without stamps could mean a lot when the person hits retirement and seeks state pension[ assuming they don't work for the 12 weeks]

sexmag

Calahonda52 wrote: »

from here:
http://www.citizensinformation.ie/en/employment/unemployment_and_redundancy/redundancy/redundancy_payments.html

you need to figure out how much is statutory redundancy and how much is not, the former portion is non taxable, the latter is.

In the event that the statutory plus the payment in lieu is less than the max tax free statutory then....

What I don't know is how payment in lieu works in relation to PRSI payments.

12 weeks without stamps could mean a lot when the person hits retirement and seeks state pension[ assuming they don't work for the 12 weeks]

I Would be of the opinion that payment in lieu would be taxable under PRSI as you would be normally working for those 12 weeks and as such would pay all your relevant taxs.

My question is as the employer is suggesting adding the 12 weeks into the redundancy i.e there are given redundancy of 4 weeks per year, technically 3 with another 12 added on as per their payment in lieu, they are effectively avoiding paying tax on it as it may fall under the redundancy exemptions after their statutory payment.

adrianw

sexmag wrote: »

I Would be of the opinion that payment in lieu would be taxable under PRSI as you would be normally working for those 12 weeks and as such would pay all your relevant taxs.

My question is as the employer is suggesting adding the 12 weeks into the redundancy i.e there are given redundancy of 4 weeks per year, technically 3 with another 12 added on as per their payment in lieu, they are effectively avoiding paying tax on it as it may fall under the redundancy exemptions after their statutory payment.

Pay in lieu of notice as described above (bring contractually obliged to be paid) is fully taxable and subject to PRSI irrespective of how it is wrapped up in the employee’s severance pay agreement.

sexmag

adrianw wrote: »

Pay in lieu of notice as described above (bring contractually obliged to be paid) is fully taxable and subject to PRSI irrespective of how it is wrapped up in the employee’s severance pay agreement.

Thats what i thought, so buy doing this they are implcating the employee and im sure revenue would come looking for that money back off the employee right?:rolleyes:

adrianw

sexmag wrote: »

Thats what i thought, so buy doing this they are implcating the employee and im sure revenue would come looking for that money back off the employee right?:rolleyes:

Unfortunately even if an employer messes up payroll, payroll taxes (other than employers PRSI) remain the employee’s liability. So if the error came to the attention of Revenue, it would be the employee who would owe the tax.

Bandana boy

They can negotiate the removal of pay in lieu of notice by offering a better redundancy payment . Which it sounds like what they have done .
This is tax efficient for your friend and they should jump at it

adrianw

Bandana boy wrote: »

They can negotiate the removal of pay in lieu of notice by offering a better redundancy payment . Which it sounds like what they have done .
This is tax efficient for your friend and they should jump at it

Thanks bandanna a boy.

I would have thought varying the terms of employment would be a taxable event, Especially if it is being done simply to avoid tax?

Calahonda52

adrianw wrote: »

Thanks bandanna a boy.

I would have thought varying the terms of employment would be a taxable event, Especially if it is being done simply to avoid tax?

I doubt it is a variation, most contracts have that option.
I am assuming the trigger for the termination of employment is covered in the employment contact..
What I am interested in here is, set aside the SD issue: if you are paid in lieu of notice, i.e. out the door at start of the 12 week notice period: do they pay 12 months ER PRSI or is it one lump sum, and just say 1 weeks ER PRSI?