The three layers of a redundancy package
| Layer | Tax treatment |
|---|---|
| Statutory redundancy (2 weeks/year + 1, €600 cap) | 100% tax-free — no income tax, USC or PRSI |
| Ex-gratia lump sum (anything the employer adds on top) | Taxable, minus exemptions (below) — often largely sheltered |
| Holiday pay, notice pay under contract, arrears | Normal pay — taxed as usual through payroll |
Work out the statutory layer first with the redundancy calculator — everything above that line is the ex-gratia part.
The exemptions on ex-gratia payments
- Basic exemption: €10,160 + €765 per complete year of service. Ten years of service shelters €17,810 of any ex-gratia sum with no conditions attached.
- Increased exemption: up to €10,000 more, provided you haven’t claimed it in the previous 10 years and (broadly) you either have no pension lump sum entitlement or waive/deduct it.
- SCSB — the pension-linked formula: (average annual pay for the final 3 years × complete years of service ÷ 15) minus any tax-free pension lump sum. For long-serving, better-paid staff this regularly beats both exemptions above; you use whichever single relief is highest.
Whatever survives the exemptions is taxed at your marginal rate — though USC applies, PRSI does not apply to the taxable ex-gratia element.
A worked example
Seán, 12 years of service, final salary €52,000, gets statutory redundancy of €15,000 plus an ex-gratia €20,000.
- Statutory €15,000 — tax-free, untouchable.
- Basic exemption: €10,160 + 12 × €765 = €19,340 of the ex-gratia is exempt.
- Taxable remainder: €660 — taxed at his marginal rate. Of a €35,000 package, roughly €34,700 lands in his pocket.
Practical points
- Get the breakdown in writing — statutory vs ex-gratia vs notice must be itemised; the tax treatment differs for each line.
- Social welfare: redundancy itself doesn’t block Jobseeker’s Benefit, but a large package can defer it for up to 9 weeks if you’re under 55.
- Pension decisions matter: claiming the increased exemption or SCSB interacts with your future pension lump sum — for big packages, an hour with a tax adviser pays for itself many times over.
Frequently asked questions
Is statutory redundancy taxable?
No. The statutory payment (2 weeks per year + 1, capped at €600/week) is completely exempt from income tax, USC and PRSI.
How much of an ex-gratia payment is tax-free?
At minimum the basic exemption: €10,160 plus €765 for each complete year of service. This can rise by up to €10,000 (increased exemption) subject to pension conditions, and a pension-based formula (SCSB) can shelter more for long-serving, well-paid employees.
What is SCSB?
Standard Capital Superannuation Benefit: average annual pay for the last 3 years × years of service ÷ 15, minus any tax-free pension lump sum. When it beats the basic exemption, you use SCSB instead — common for long service and higher pay.
Do I pay tax on payment in lieu of notice?
If your contract provides for pay in lieu of notice, it’s taxed as normal pay. If there’s no contractual provision and it’s paid as part of a termination package, it may fall within the ex-gratia exemptions. The contract wording decides.