Redundancy Payments - Quinn Insurance
Friday, 30 April 2010
Staff at Quinn Insurance Ltd are preparing for an announcement that up to 800 jobs may go in the company.
What do you do if you have been made redundant, when will you receive your payment and how will this affect your finances?
Finance Expert Liam Croke is on hand to answer those difficult questions about redundancy payments.
Liam Croke: Money Expert
Liam has worked in the financial services industry for the past 21 years and seen by many as an expert in the field of personal finance. He is a qualified financial and mortgage advisor.
In the past he has held senior management positions with two well known financial institutions along with one of the "top 5" accountancy practices in Ireland.
Liam gives his advice and wisdom on a daily basis to those who are just starting out to high net worth individuals. He currently works for a financial services company based in Limerick.
He is frequently asked to contribute and comment in all areas relating to personal finance on both national and local radio stations. You will have heard him for example recently on RTE's "The Mooney Show" and on Newstalk's "The Right Hook."
Liam was invited to make a presentation to the Joint Oireachtas Committee on Social & Family Affairs on trends and levels of personal debt in Ireland. He made his presentation to the committee on the 24th June 2009.
Liam is author of 4 personal finance books:
. The best selling The Mortgage Maze Explained published by Currach Press in 2006.
. The best selling book Your Money Your Life - Managing your finances in today's Ireland published in 2007.
. I'm Broke! A teenagers guide to Money - Published by Crabtree and distributed in the UK & USA in 2009
. Stash or Splash which is being released in Ireland and the UK in September of this year.
. Liam previously wrote a weekly personal finance column for The Sunday World entitled "Mr. Cash - How to Save it, Spend it, Earn it" and has also written articles for the Sunday Business Post, the Evening Echo, the Sunday Independent, the Irish Sun, Prudence Magazine to mention just a few.
When you have been made redundant the important thing is to think to the future and make smart financial decisions.
How is your redundancy package negotiated?
In the case of Quinn, the company will go into a negotiation process with the union that can last up to a maximum of 30 days.
The union will negotiate the best possible deal for the workers and this negotiating process can last anything from 3 days to 30 days.
Quinn have said that this payment will be better than the statutory repayment package.
Statutory Payment Package
This is the minimum redundancy package that can be offered. It is 2 weeks pay for every year's service plus a bonus week. €600 is the maximum that you can get for a year.
An employee is entitled to a statutory redundancy payment if:
. You are 16 years or older
. You have at least 2 years continuous service You are in employment which is insurable for all social welfare benefits - i.e. Class A contributions You have been made redundant because your job no longer exists and you were not replaced
. You have worked with your employer for the past 6 years and your current salary is €42,000.
If you have 6 full years of service you will be entitled to:
6 x 2 weeks plus 1 week = 13 weeks
Even though your salary is €808 per week, the maximum you are entitled to is €600 per week therefore your statutory payment will work out as follows:
13 weeks x €600 = €7,800
This payment is tax free
Your employer by the way can get a refund of 60% of this payment i.e. €4,680 from the Department of Trade, Enterprise & Employment - or whatever it is called now!
What happens if an employer does not pay you your statutory redundancy payment?
If this happens then your entitlement will still be paid by the Department of Enterprise from the Social Insurance Fund (S.I.F.)
The former employer will then become a "preferential creditor" to the department for payment of this money to you
What happens once they have agreed on a redundancy payment?
Quinn will do all the paperwork for their employees and organise the payment as they are made redundant. For example if an employee is working up until the end of July they will get their payment at that point.
Are you taxed on your redundancy payment?
Statutory Payments are tax free. However, as the Quinn payments may be more some of the payment may be taxed and the rest of the amount will be tax-free.
Ex-gratia payments or compensation payments over and above the statutory redundancy payments are taxable, but there are exemptions available which can reduce the amount charged to tax.
There are ways to reduce your tax:
The Basic Exemption
The first exemption is €10,160 together with an additional payment of €765 for each year of completed service
The basic exemption can be increased by €10,000 to a maximum of €20,160 plus €765 for each complete year of service provided (a) no claim had been made for the increased exemption in the previous 10 tax years (b) if any future tax free lump sum to which you may be entitled to is deducted from the extra €10,000 exemption
Standard capital superannuation benefit (SCSB)
This is a method of reducing your tax on your redundancy payment by waiving the tax-free element of your pension.
Average Salary in last 36 months x Years in Service - Future tax free lump sum from pension
You have 10 years service and you receive a lump sum of €50,000 (excluding statutory redundancy) You are entitled to a tax free lump sum of €12,000 from your pension scheme.
The tax free amount you are entitled to is the highest of the following:
€10,160 + €765 x 10) = €17,810
As you are in receipt of a tax free lump sum from your pension scheme in excess of €10,000 then the increased exemption does not apply
Assuming your average salary for the last 36 months was say €45,000 then calculation of the SCSB is:
€45,000 x 10 - €12,000
___________________ = €29,200
The highest of the above three exemptions therefore is the SCSB amount of €29,200 and this is the amount you can receive tax free.
Summary of tax position:
Gross lump sum €50,000
Less: SCSB €29,200
Tax @41% €8,528
Health levy @ 4% €832
Income levy @ 2% €416
Total tax and levies €9,776
Net lump sum €40,224
Top Slicing Relief
This is a relief given at the end of the tax year in which you received the lump sum. It works by calculating your average rate of tax for the 3 years prior to the tax year in which you received the lump sum. If the average is lower than the rate of tax you paid your lump sum on the the tax payable will be recalculated at the lower rate and you are then entitled to a refund on the difference.
So, let's assume your taxable lump sum was €20,800 as above and you paid tax @ 41% on this amount i.e. €8,528 but your average tax for the past 3 years was 30% then top slicing relief would work out for you as follows:
€8,528 - (€20,800 x 30%) = €2,288
Remember, you have to wait until the end of the tax year in which you receive your lump sum in order to claim the top slicing relief.
If you receive a redundancy payment does this affect your social welfare?
No, you can still apply for social welfare. You are still entitled to this and a job seeker. They may means test you depending on your circumstances. In the case of Quinn they will send in a representative from Social Welfare services to help them with any issues they may have.
What other factors do they need to keep in mind?
There are many benefits that Quinn workers will be losing for example their insurance, which was more than likely with Quinn and part of their contract. Their union will negotiate whether for example a year's coverage is included in their package. If not you will have to organize a new policy.
Renegotiate your loan repayments
If you know in advance that you will have difficulty repaying your loans speak or have someone on your behalf speak to your lenders ASAP and arrange a new repayment schedule that they are happy with and that you can afford to repay each month until you are back working and hopefully earning more. If you know your financial circumstances are going to change let your lenders know sooner rather than later and make a plan.
To help guide you follow Liam's 4 'C's'
The Four 'C's'
1. Choose what suits YOU
. Everyone is different so what suits one person will not suit everyone.
. Make the choices that are appropriate to you and your situation.
2. Check your Sources
. Make sure you are getting information from creditable and reliable sources.
. Do not make a decision based on hearsay or biased information.
3. Check the Facts
. Seperate fact from opinion
. Double check the information you are given.
4. Choose Confidently
. Do not make rash or emotional decisions - Stay Calm.
. Bad decisions can take years to recover from.
Other Factors to consider - Pension & Insurance
If your employer was dealing with your pension then you will have to set-up a new pension scheme. You have some options:
1. Transfer your pension to a new scheme when you start a new job.
2. Set up your own pension with a PRSA - Personal Retirement Savings Account.
3. Leave your current pension fund alone.
4. Refund your contributions if you have been with a company for less than 2 years.
Your employer may have been taken care of some of your insurance schemes.
Two in particular to be aware of are:
. Death in Service Benefit
. Income Replacement Policy
Death in Service Benefit
This is similar to a life assurance policy. Your employer may pay a lump sum to your family if you pass away.
If you do not have life assurance, shop around for a competitive scheme.
Income Replacement Policy
If you were unable to work for an amount of time your employer may pay you a percentage of your salary.
When you start working for a new employer see if they can provide you with this scheme.
Important: Many people are paying for life, home and protection insurance and have no idea if it is competitive or not. 90% of the time they are paying way too much for cover.
You need to check the 7 life companies that operate in Ireland and compare each in terms of price and select the one which offers you the best and most competitive rates available.