DCA Q&A – WILL I HAVE TO PAY REDUNDANCY?
Q: I’ve been struggling to keep my small business – a coffee shop in a country town – going. I’ve pared virtually all costs down to the bone and I’m left with only one cut to make: my sole employee.
I could, at least in theory, manage the business on my own without him. However, he has been working there for a good eight years. He’s been just a few euro above the minimum wage, with varying hours over the period. Will I need to pay redundancy, and around how much will I have to pay?
Don’t get me wrong – I’m gutted to be letting this guy go, as he’s a great worker, and I’d give him a good lump sum payment if I can. I fear, however, that the cost of paying statutory redundancy will effectively put me out of business. What would you advise?
A: Firstly, commiserations: no employer wants to be in your position. I’m afraid that you are obliged to pay redundancy if you let your employee go: he’s entitled to two weeks of pay for every year of service he’s given since turning 16, plus a further week’s pay – this is capped at €600 per week.
There is provision for the State to pay a person their statutory redundancy entitlement using the Social Insurance Fund, and to then pursue the employer for this, if you are unable to pay your employee’s full entitlement. If this is your situation, your employee will need to apply here, download the RP50 form and send it in to the Department of Social Protection. You should also sign your section of the firm and submit a letter from an accountant or solicitor, stating that you are unable to pay and accepting liability for 100% of the lump sum owing to the Social Insurance Fund. Also include documentary evidence such as audited accounts. You can then negotiate a payment plan for the liability. Remember, the officials aren’t looking to put you out of business, but they are looking to recover the monies owed in a reasonable timeframe: being as up-front as possible, and sticking to any commitments you do make, will help you immensely.
You should, of course, consider other options for dealing with this situation: is it possible to keep the employee working on a shortened week, or for him to accept a voluntary pay cut? While you should be aware that he won’t like either of these solutions, either will probably be preferable to a P45. At least have a conversation to find out if he can meet you half-way on this matter.
In the longer term, of course, you should consider whether your business is viable in the current climate. Being determined to soldier through the bad times is admirable, but don’t let sheer stubborness or pride keep you ploughing money and time into a venture that just won’t work. While shutting up shop would definitely be a painful process, you’re better off doing so before you get into deep trouble.
We advise a number of businesses that are struggling, helping them to evaluate whether they have a future and to take the next steps towards survival or an orderly wind-down. For an initial chat to discuss your options, feel free to contact us [link] and start taking control of the situation.
Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.