Statutory redundancy and the tax-free part of an ex-gratia payment.
Statutory redundancy (tax-free)
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Ex-gratia tax-free
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Taxable excess
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Tax on excess
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Statutory redundancy, and why it is tax-free
When a genuine redundancy ends a job, two separate amounts can come into play, and they are taxed very differently. The first is statutory redundancy, the legal minimum an employer must pay. It is two weeks of gross pay for each full year of service, plus one bonus week, with the weekly pay figure capped at €600 for this calculation. Crucially, statutory redundancy is entirely free of income tax, USC, and PRSI. The tool computes it and flags it as tax-free.
The second amount is any ex-gratia payment, the extra lump sum an employer chooses to add on top of the statutory minimum. This is where tax can bite, but a generous exemption usually shelters a large chunk of it. The calculator works out both pieces and the tax on whatever ex-gratia portion falls outside the exemption.
The two exemptions on an ex-gratia payment
Your ex-gratia payment is sheltered by the higher of two reliefs. The basic exemption is €10,160 plus €765 for each full year of service. The alternative is the Standard Capital Superannuation Benefit, or SCSB, which takes your average annual pay over the last three years, divides by 15, multiplies by years of service, and subtracts any tax-free pension lump sum you have already taken. You get whichever figure is larger. For longer-serving, higher-paid staff the SCSB usually wins comfortably.
Ten years service, a €40,000 ex-gratia
Consider ten years of service, gross weekly pay of €900, and a €40,000 ex-gratia payment with no prior lump sums. Statutory redundancy uses the capped weekly figure of €600: two weeks per year plus a bonus week is 21 weeks, so 21 times €600 gives €12,600, all tax-free. For the ex-gratia, the basic exemption is €10,160 plus €7,650, which is €17,810. The SCSB takes average annual pay of €46,800, divided by 15 is €3,120, times ten years is €31,200. The SCSB of €31,200 beats the basic, so €31,200 of the ex-gratia is exempt. That leaves €8,800 taxable, and at the 40 percent marginal rate the tax is €3,520.
Edge cases worth knowing before you sign
Anyone facing redundancy who wants to separate the tax-free statutory amount from the taxable slice of a package, or to negotiate a settlement with eyes open, is the intended reader here. A few refinements sit outside the headline figures. There is a €200,000 lifetime cap on the total ex-gratia exemption you can claim across your career, which does not bite at the modest figures above but matters for very large payoffs. Using the SCSB route can also require you to give up the right to a future tax-free pension lump sum, a trade-off worth weighing.
The taxable excess is charged at your marginal rate, which the tool assumes is 40 percent. If the redundancy drops your income for the year, some of that excess might fall into the 20 percent band instead, reducing the bill, so the figure here is a prudent upper estimate. One practical tip. Where the package is large, asking the employer to spread an ex-gratia payment across two tax years, or timing it carefully, can keep more of it inside the lower band.
Does statutory redundancy count against the ex-gratia exemption?
No. Statutory redundancy is tax-free in its own right and sits entirely separate from the basic and SCSB exemptions, which apply only to the ex-gratia portion. You do not have to choose between them. You receive the statutory amount free of tax and then apply the exemption to the discretionary lump sum on top.
What if I am made redundant after only a year or two?
Short service shrinks both the statutory entitlement and the per-year part of the basic exemption, but the €10,160 flat element of the basic exemption still applies in full. With little service the SCSB tends to be small, so the basic exemption usually governs, and a modest ex-gratia may be fully covered with no tax at all.