Redundancy taxed in full

prettyboybaker

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31
Hi all,

My partners company are going through a round of statutory redundancies. It appears she wont get the chop this time but we expect it to happen in the near future.

She has been talking to colleagues on the package and they are reporting that the entire ex gratia payment is being taxed fully. Staff are being told that this is a result of a stipulation in their contract.

Does this seem fishy to anyone else? Also, who gets to decide which tax options they can apply to the ex gratia payment ? Surely the employee does.

Lastly what benefit might there be to the company to take this route? The only financial saving I can think of is administrative.

Whole thing seems bizarre.

Thanks
 

misemoi

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297
This happened some colleagues once. Just easier for them to tax and let the employee reclaim. Make sure your partner gets all the paperwork and revenue will make sure to refund any overpaid tax. Company will be owed er prsi as well, so it's not good for them but probably the easiest for them !!
 

Gordon Gekko

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If it’s a contractual obligation, then it’s not ex gratia.

‘ex gratia’ literally means as a favour or with no legal obligation.

If there’s ambiguity, it absolutely makes sense for the employer to operate full PAYE etc. The risk is on the employer if they don’t as the employee could go off into the sunset with the cash, with Revenue looking to gross it up.

The “stipulation in the contract” part sounds like the problem.

They should ask the company to foot the bill for an employment tax and legal specialist to look at the issue.

And if they refuse, and the amounts involved are meaningful, which I suspect they are, they should get their own advice.
 
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prettyboybaker

Registered User
Messages
31
This happened some colleagues once. Just easier for them to tax and let the employee reclaim. Make sure your partner gets all the paperwork and revenue will make sure to refund any overpaid tax. Company will be owed er prsi as well, so it's not good for them but probably the easiest for them !!
Thanks Misemoi, I'm a bit confused by the last part. Do you mean the company will owe revenue prsi ? Also, do you know if the refund is in tax credits or cash? Thanks again.
 

prettyboybaker

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Messages
31
If it’s a contractual obligation, then it’s not ex gratia.

‘ex gratia’ literally means as a favour or with no legal obligation.

If there’s ambiguity, it absolutely makes sense for the employer to operate full PAYE etc. The risk is on the employer if they don’t as the employee could go off into the sunset with the cash, with Revenue looking to gross it up.

The “stipulation in the contract” part sounds like the problem.

They should ask the company to foot the bill for an employment tax and legal specialist to look at the issue.

And if they refuse, and the amounts involved are meaningful, which I suspect they are, they should get their own advice.
Thanks so much for that. I haven't seen the offer and she is currently digging out her contract so we will see.

The company themselves have apparently labelled it an ex gratia payment but as I said I've yet to see the offer myself.

If it is ex gratia then it does feel like bad faith by the company. Not only redundant but then having to wait till next year to claim back tax overpayment.
 

Gordon Gekko

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6,459
Essentially, pay in lieu of notice or any kind of contractual entitlement to a payment is taxable in full.

“We’re really sorry, here’s 50 grand” is when it’s potentially tax free.

And statutory is tax free (the two weeks per year capped at €600 a week stuff).
 

prettyboybaker

Registered User
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31
Essentially, pay in lieu of notice or any kind of contractual entitlement to a payment is taxable in full.

“We’re really sorry, here’s 50 grand” is when it’s potentially tax free.

And statutory is tax free (the two weeks per year capped at €600 a week stuff).
Again, thanks so much. Really helpful
 

misemoi

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297
Yes this was a huge pain for my colleagues...when it came around to my time they had gotten themselves in gear and were applying all the exemptions. So I got my correct net redundancy while my colleagues were still waiting for their refund !
 

prettyboybaker

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31
Yes this was a huge pain for my colleagues...when it came around to my time they had gotten themselves in gear and were applying all the exemptions. So I got my correct net redundancy while my colleagues were still waiting for their refund !
Hopefully the company get their act together before it's our turn to walk the plank. Thanks for your help.
 

prettyboybaker

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31
Thanks all.

A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".

Are we goosed then?

Apparently, this clause only appears in older contracts.

Surely redundancy is redundancy and is taxed as such regardless of clauses?
 

Gordon Gekko

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6,459
Thanks all.

A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".

Are we goosed then?

Apparently, this clause only appears in older contracts.

Surely redundancy is redundancy and is taxed as such regardless of clauses?
My view is that you’re completely goosed.
 

Gordon Gekko

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6,459
Damn it. Is it worth talking to somebody like a lawyer? If so what type?

I really do appreciate your help. Thanks
If it was me, I’d play dumb, go to the company, and say “this is terrible, surely there’s a way to sort it out, should the company not get tax/legal advice from a specialist for everyone’s benefit?”

(e.g. isn’t there a PRSI saving for the employer?)
 

prettyboybaker

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You are a legend. Playing dumb comes naturally.

Interestingly out of the dozen our so getting chopped, only 3 are affected by this clause.

Part of me wonders if there is some discriminatory angle.
 

Gordon Gekko

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6,459
You are a legend. Playing dumb comes naturally.

Interestingly out of the dozen our so getting chopped, only 3 are affected by this clause.

Part of me wonders if there is some discriminatory angle.
I doubt it.

Just legacy contracts and foreign HR people not having a clue probably.

Best of luck.
 
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