Taking over a Sole Trader's Business with employees

DaveD

Frequent Poster
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293
A friend has been offered the opportunity to buy a sole trader's business as they wish to retire. It's a small service business with 2 employees. There is a nominal amount being discussed for "buying" the business along with a separate small amount for existing equipment used in the course of the business, so not huge amounts of money involved. However, the 2 employees have about 20 years of employment with the sole trader's business between them and the main concern is what responsibility the new owner would have in relation to the employees, particularly with regard to redundancy payments if the new owner needs to close the business in the future.

I'm far from knowledgeable in this area so may not even be asking the right questions but advice on the following would be appreciated, or anything else that needs consideration!

  1. Is the new owner liable for redundancy payments to employees from their original date of employment with the business or only from when they take over the business.
  2. Assuming the redundancy liability carries forward to the new owner, what sort of money should be allowed for per year of employment?
  3. Does any outstanding redundancy liability count as a "debt" that moves with the business for the purposes of valuing the business?
  4. If the previous owner hasn't been 100% compliant with paying PRSI etc. for employees does any underpayment, non-payment due then pass to the new owner?
Apologies for what may be basic queries but it's trickier than one might have hoped to find relevant answers on the Revenue or other Government websites.

Many thanks.
 

Brendan Burgess

Founder
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42,967
He should assume that he will be liable for the redundancy payments, which are

  • Two weeks' pay for every year of service they have since they were 16 and
  • One further week's pay
The amount of statutory redundancy is subject to a maximum earnings limit of €600 per week (€31,200 per year).

€1,200 x 20 +€600 = €23k

For two employees, €46k.

And forget about any ideas of contracting out.

He should assume that he is taking on a liability of €46k.

It's a bit tough on the existing owner, but he will have to pay this money and the state offers no rebate.

Brendan
 

Brendan Burgess

Founder
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42,967
If the previous owner hasn't been 100% compliant with paying PRSI etc. for employees does any underpayment, non-payment due then pass to the new owner?

I would say no. However, if he stops paying the two guys cash and puts everything through the books, then the employees might complain.

This is so messy that I think your friend should have nothing to do with it and set up on his own.

Brendan
 

DaveD

Frequent Poster
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293
Thank you very much Brendan, I’ll pass on your advice. It Is indeed a bit tough on the existing owner and I’m sure most in a similar situation don’t even realise this consequence of taking on employees who then stay with them for many years.
 

Autofill

Registered User
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20
Dave you said 20 years between them. So if that’s 10 each I think Brendans calculations are for 20 years each, that would reduce max to 23000 and maybe they had been on less than 600 so might be less. If it was only 23k max maybe he could get the seller to reduce the price of the business by this amount.
 

DaveD

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293
Thanks, I saw that, and their weekly wage would be less than €600, but the we can figure out the exact figure involved. The redundancy liability carrying forward was the real unknown and really the main concern. I think it’s probably a non-runner with this to consider.
 

peemac

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850
You can claim hardship for paying statutory redundancy and it gets paid by social welfare office.

They usually require accountant's letter and copy of accounts, but done quickly.

It is repayable, but only when the company can afford it.

If the company ceases trading, the debt is extinguished.
 

Autofill

Registered User
Messages
20
You can claim hardship for paying statutory redundancy and it gets paid by social welfare office.

They usually require accountant's letter and copy of accounts, but done quickly.

It is repayable, but only when the company can afford it.

If the company ceases trading, the debt is extinguished.
It’s a sole trader not a company. I’m not sure if the hardship thing works any more maybe it does, but I know of a sole trader that claimed it years ago, started a new trade last year, started a small dd paying it back and was told rest would be taken from his estate when he dies.
 
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