Redundancy question on 'payment in lieu of notice'

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bmc

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Our company is in the process of imposing redundancies. In our contract of employment it states "The company reserves the right to make a payment in lieu of notice", but this appears under the "Duration of Employment & Probationary Period". We have been advised that due to this clause the employee's notice period will be taxable. Can you please advise if this interpretation is correct? We believe/hope it is not the case as each effected individual will pay thousands in additional tax.[FONT=&quot]
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Where the right to payment in lieu of notice is included in the contract ( or possibly ancillary documents, such as TU agreement) the payment is taxable as employment income.
 
PILON payments are in effect, the salary you would have earned had you worked out your notice, hence they are subject to income tax in the normal manner. Note it is only the amount classified as PILON that is taxable in this manner, any redundancy payments are seperate
 
bmc said:
Our company is in the process of imposing redundancies. In our contract of employment it states "The company reserves the right to make a payment in lieu of notice", but this appears under the "Duration of Employment & Probationary Period". We have been advised that due to this clause the employee's notice period will be taxable. Can you please advise if this interpretation is correct? We believe/hope it is not the case as each effected individual will pay thousands in additional tax.[FONT=&quot]
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Payment in lieu of notice means that you are paid up front instead of having to work out your notice. So, it is only payment for the notice period, which would typically be one to three months. How can this increase the tax you pay by thousands, if it is only a few months salary .
It does not change the taxing of the redundancy payment.
 
If you are paid in advance for a notice period longer than a normal pay period you will overpay, assuming you don't work elsewhere during the notice period. You should be able to get some of this refunded before the end of the year by filling out form P50 and sending it to Revenue.
 
If there had been no mention of PILON, it could have been paid as part of any ex gratia paymnet and subject to the tax allowances for termination payments. Because it is mentioned it is a contractual payment and thus must be taxed.
 
But the clause in the employment contract does not appear to give the employee the right to be paid in lieu of notice (i.e. the right to demand to be paid it if not offered). It only gives the employer the option of paying it.
Whether a month's equivalent is taxed or not can easily amount to thousands for some people in an organisation.
Definitely worth checking out further.
 
my understanding is that its taxed like pay and IS NOT part of redundancy
BUT i am not an expert just been there done that
 
Scrambler said:
But the clause in the employment contract does not appear to give the employee the right to be paid in lieu of notice (i.e. the right to demand to be paid it if not offered). It only gives the employer the option of paying it.
Whether a month's equivalent is taxed or not can easily amount to thousands for some people in an organisation.
Definitely worth checking out further.
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It doesn't matter, either you work out your notice and get paid and taxed on it, or you don't, get a PILON payment and get taxed on that. The tax you pay will be more or less the same
 
The problem arises when the payment is for more than a typical work period - for example, if you are paid weekly and get paid for three weeks in lieu of notice you will be using only one week of tax credit and standard rate band for four weeks' pay. Any overpayment can be dealt with at the end of the year, but most would prefer the money now.
 
Mpsox said:
It doesn't matter, either you work out your notice and get paid and taxed on it, or you don't, get a PILON payment and get taxed on that. The tax you pay will be more or less the same
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Have to disagree. Payment in lieu of notice (if no complications via the employment contract) is treated as part of the ex-gratia payment and therefore is not subject to tax as long as the total ex-gratia is under certain limits.
 
Scrambler is correct. If it is in the contract of employment it isn't an ex-gratia payment and can therefore be taxed. If it is not in the contract of employment then it is treated as an ex-gratia payment and is not taxed as long as it is under the threshold. The following is from revenue.ie:

What lump sum payments qualify for some relief from tax?

The following redundancy and retirement payments, although not exempt from tax, qualify for some relief from tax. These are:

  • Salary or wages in lieu of notice, on redundancy or retirement. However, where the contract of employment provides for a payment of this kind on the termination of the contract, whatever the circumstances, such payment is chargeable to income tax in the normal way without the benefit of the exemptions and reliefs mentioned later.
 
Ex-Gratia payments are generally arbitrary amounts agreed between the employer and employee(s). Why not ask the employer to increase the ex-gratia payment by the amount of PILON. As the company "reserves the right" to give PILON, it should also be able to not give same.
 
Payment in lieu of notice is not an ex-gratia payment. If there is a notice period in your contract, your employer is obliged to pay it. It is taxed as normal pay. PILON is where the employer is paying it, but telling the employee that they dont have to bother turning up for work during the period of notice. Essentially the employer is doing the employee a favour by not requiring him/her to turn up. Also, unemployment does not kick in until the PILON period is over as during PILON, you are still "employed" by the employer.
 
csirl said:
Payment in lieu of notice is not an ex-gratia payment. If there is a notice period in your contract, your employer is obliged to pay it. It is taxed as normal pay. PILON is where the employer is paying it, but telling the employee that they dont have to bother turning up for work during the period of notice. Essentially the employer is doing the employee a favour by not requiring him/her to turn up. Also, unemployment does not kick in until the PILON period is over as during PILON, you are still "employed" by the employer.
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Have to disagree.
PILON can be included as part of an ex-gratia payment.
The employer can ask the employee to work the notice period and then there would be no PILON.
PILON is not taxed as normal pay.
If you have been paid PILON you can go immediately to the Social Welfare office and put in your claim for unemployment benefit / assistance. They just need proof of your last day actually working. You do not have to wait until after the notice period.
 
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