Ter­mi­na­tion pay­ments for PAYE work­ers

Bray People - - INSIDE BUSINESS -

WHERE per­sons lose their jobs due to re­dun­dancy they will be en­ti­tled to re­dun­dancy, which is two weeks’ pay for each year of ser­vice plus one week. The weekly level of pay is limited to €600 in the cal­cu­la­tion. This pay­ment is ex­empt from tax.

A lump sum en­ti­tle­ment from a pen­sion scheme will also be tax-free. How­ever, where ar­range­ments are made to in­crease the lump sum and re­duce the an­nual pay­ments the amount of the lump sum ex­emp­tion is now capped at €200,000. Ex­cess is tax­able.

‘Golden Hand­shakes’ are a com­mon term in ev­ery­day use. It refers to a vol­un­tary pay­ment by an em­ployer to get rid of staff that are no longer re­quired but may be able to bring a claim for un­fair dis­missal or threaten strike ac­tion if not bought off.

Here the ex­emp­tion is € 10,160 plus €765 for each com­plete year of ser­vice. This €10,160 can also be in­creased by €10,000 if there was no prior claim for the last 10 years and the em­ployee is not in a Com­pany Pen­sion Scheme. The ex­cess above the rel­e­vant ex­empt fig­ure will be tax­able and the em­ployer, in mak­ing the pay­ment, will op­er­ate PAYE on the ex­cess.

Em­ploy­ees with very long ser­vice can of­ten ben­e­fit bet­ter un­der a for­mula known as the Stan­dard Cap­i­tal Su­per­an­nu­a­tion Ben­e­fit (SCSB). Here the aver­age an­nual pay in­clud­ing BIK for the fi­nal 3 years of em­ploy­ment is div­i­dend by 15 and mul­ti­plied by the num­ber of com­plete years of ser­vice. The re­sult is then re­duced by the cur­rent ac­tu­ar­ial value of a fu­ture lump sum from a com­pany pen­sion. The over­all SCSB limit is now capped at €200,000.

Top Slic­ing Re­lief, which re­duced the tax rate on the tax­able por­tion of any lump sum to the aver­age of the three prior years, is abol­ished from 1/1/2014. Fi­nally, pay­ments which arise due to the death or in­jury of an em­ployee are ex­empt from tax up to €200,000 with the ex­cess be­ing li­able at mar­ginal rate of tax. Pay­ments made as a re­sult of a find­ing by the Em­ploy­ment Ap­peals Tri­bunal or the Courts will be sub­ject to the nor­mal ex­emp­tions de­scribed above and the ex­cess is tax­able.

In the un­usual cir­cum­stances of where an em­ployee typ­i­cally an ex-se­nior ex­ec­u­tive may have a Court ac­tion for a per­sonal wrong suf­fered e.g. a li­able ac­tion, then Courts will be sub­ject to the nor­mal ex­emp­tions de­scribed above and the ex­cess awards of com­pen­sa­tion by a Court would be tax-free.

Rev­enue ap­proval is no longer re­quired by the em­ployer in or­der to ap­ply the ex­emp­tions for a lump sum to the de­part­ing em­ployee. How­ever, if em­ployer gets the amount wrong and fails to op­er­ate tax cor­rectly the li­a­bil­ity to pay an un­der­charge of tax falls on the em­ployer. This is be­cause the pay­ments are made via the PAYE sys­tem.

PRSI does not have to be op­er­ated on ter­mi­na­tion pay­ments. The po­si­tion with USC is dif­fer­ent in that the tax­able ex­cess over the ex­emp­tion is li­able to USC.

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