# Difference between severance pay and redundancy pay



## johnd

can someone explain the difference between redundancy pay and severance pay? A young friend was offered severance pay by his company and wants to know if this is treated the same as redundancy pay for income tax purposes and would he be entitle to claim jobseekers benefit right away or have to wait six weeks?


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## Nige

A redundancy exists when a position is being let go (so total headcount is lower). A person is entitled to redundancy pay if they are being made redundant and have worked there for at least 2 years. Redundancy payments are tax free.

Severance pay can be paid in any case where someone is leaving a job (by their own choice or being let go). Where the payment being made when someone is let go is more than the statutory redundancy amount, then there are tax reliefs available to exempt some or all of that payment from tax.

The non-redundancy amount is tax free up to €10,160 plus and additional €765 for every full year worked with that employer. This can be increased by a further €10,000 if they have no work pension or if they waive their right to a future tax free lump sum from that pension. 

Alternatively, the tax free amount can be calculated using the SCSB formula. This is the average pay for the last three years, divided by 15 and then multiplied by the number of full years worked there. This is then reduced by the value of the future tax free lump sum from the pension (if there is one and it is not waived).


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## johnd

Nige - Many thanks for your reply and very helpful information


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