Tax Implications on Pay-Off from Previous Employer

[JimmyCorkhill]

Hi Folks,

I am looking for advice for a family member. They were dismissed from their previous job (due to alleged misconduct issues, which they dispute). They are currently working in a new company.

They had engaged SIPTU in relation to the dismissal from their previous role and the previous employer has now offered to make a payment settlement.

If say the payment was €15,000 to the family member, is there any tax implications for the family member?
What would the company classify the payment as?
Would the family member need to declare the amount they received?

Thanks

 

[AAAContributor]

SIPTU deal with events like this every day of the week I'd imagine and the representative should be able to give some guidance to your family member on this.

Section 192A (exemption for payments made under employment law) is probably what one would have recourse to here.

If the matter was settled without referral to a relevant authority (Employment Appeals Tribunal, WRC, Labour Court, Circuit/High Court....), there are conditions that have to be met:

- the settlement is evidenced in writing;

- the agreement is not between connected parties;

- the claim would have been a bona fide claim under a relevant Act had it been made to a relevant authority (there must be sufficient grounds for the claim, it must be within the scope of one of the relevant Acts, it must be made within the specified time limit etc);

- the claim is likely to have been the subject of a recommendation, decision or determination by a relevant authority that a payment be made;

- the payment does not exceed the maximum amount that could have been awarded under the relevant legislation.

There are important exclusions however. The exemption does not apply to a payment in respect of:

- remuneration or arrears thereof;

- the termination of an office or employment (the basic, increased exemption and SCSB exemptions may come into play instead).

What would the company classify the payment as?

I'd say this is the important point. Refer to whatever has been put in writing. Care must be taken when describing a payment.

For more on this:

Law Society of Ireland Gazette

www.lawsociety.ie

Part 07 - Sections 187-236

www.revenue.ie

Disclosing the settlement award to Revenue would be done in an annual return I'd say.

 

[JimmyCorkhill]

Many thanks for your reply, some good information & links provided.

 

[JimmyCorkhill]

The SIPTU rep couldn't advise or offer advice on the tax implications.

From reading into the links provided by AAAContributor and other articles, it really does seem like a coin toss on whether it is taxable or not.

I cannot seem to post a link to another article, I get a message about possibly being spam or inappropriate content. Any ideas?

It seems ideally you need the employer to admit liability or guilt for it to be non-taxable. In this case the employer may not admit that, even though they are willing to make a payment.

Would it be an option to go down the route of it being classified as an ex-gratia payment? Whereby the first €10,160 (plus €765 for each year of service) is tax free?

Can an ex-gratia payment be made to an ex-employee months after they have left? Or would it need to have been part of the agreement to terminate the employees contract at the time?