Employers’ groups have warned that some workers may not receive their statutory entitlement to redundancy payments if employers have to pay for the scheme.
The Government announced today the rebate paid by the State to employers for statutory redundancy lump sums will drop to 15 per cent, as Ireland moves in line with practices in other countries.
Up to now, employers were entitled to a rebate of 60 per cent from the State on the amounts they paid to employees under the scheme.
Minister for Social Protection Joan Burton described Ireland as “outliers” in relation to redundancy rebates to employers.
She said the cut had been made in light of a number of cases where profitable employers had made their Irish staff redundant and moved the jobs abroad, triggering a cost to the State. In cases of redundancies at companies like Dell, SR Technics and Talk Talk, the State was “effectively then giving a supplement” on the standard redundancy payment.
“No other European country, according to advice given to me by the OECD, gives such payments,” the Minister said. In the UK, redundancy payments have been entirely funded by the employer since the 1980s, she added.
“At a time of recession, I have to say it is worthwhile examining whether we should be paying redundancy rebates to employers.”
Ireland paid out €373.2 million in redundancy rebates to employers and €185.3 million has been paid so far this year.
Reducing the rate of rebate to 15 per cent will save the State €81 million in 2012, the Department of Social Protection estimates.
The Construction Industry Federation criticised the move and said it would “inevitably” lead to some company failures.
“It is clear that some workers will not receive their full statutory entitlements and the burden will inevitably fall to the State,” it said in a statement.
Business group Ibec said the changes were “effectively a tax on jobs”, adding that the statutory redundancy scheme was “unsustainable” if employers had to fund most of the payments.
Ibec’s director general Danny McCoy said the net cost to employers of statutory redundancy was now about two and a half times that in the UK.
“This represents a major blow to our competitive position,” he said. “We must change other aspects of our redundancy provisions in line with those of our nearest competitor.”
In Ireland, employees with two years’ service who are made redundant are entitled to two weeks’ pay for each year of service, plus one further week’s pay, up to a maximum earnings limit of €600 a week.
In the UK, where the two years’ service requirement also applies, the payment is half a week’s pay for each year of service under the age of 22, one week’s pay for each year of service between the age of 22 and 41 and 1.5 week’s pay for each year above that age, subject to a £400 per week maximum weekly wage.
Chief executive of Chambers Ireland Ian Talbot said the impact of today’s measures is difficult to judge without the tax portion of the Budget being made tomorrow.
But he said the cuts in redundancy rebate will have a “serious impact on businesses seeking to survive”.
“Challenged employers needing to make redundancies will need to cut costs further which unfortunately may lead to the loss of even more jobs,” Mr Talbot added.
This was echoed by Patricia Callan of the Small Firms Association who said businesses normally only take the decision to make people redundant when they can’t “afford to pay the bills”.
“Even more employees have to lose their jobs, just to cover the cost of the redundancies and the net impact this will have on the company’s cashflow.”
The Government is being very short-sighted on this measure – it is much cheaper to maintain a job, than to try and create one.” Ms Callan added.
