In most cases, the employer must pay a transition payment to employees who are made redundant. This also applies where employees are made redundant because the employer’s business is being wound up.
Transition allowance
We set out the rules regarding the transition payment in our article Increase and changes to the transition allowance for 2018. The maximum transition payment is now slightly higher. For 2021, this maximum stands at €84,000.
Compensation for an employee unable to work
The options for offsetting the transition payment were already outlined in 2018 (see our article Compensation transitional allowance). The first of these came into force on 1 April 2020.
Employers are compensated by the government for the transition payment they make to employees who are made redundant on the grounds of long-term incapacity for work. This means that employers are no longer required to maintain these employees’ so-called ‘dormant’ employment contracts.
Compensation upon the winding-up of a business
With effect from 1 January 2021, compensation has been introduced for the transition payment in connection with the dismissal of employees due to the employer winding up the business. This applies to situations where the business is wound up due to the employer’s retirement or death. Compensation in the event of business closure due to the employer’s incapacity for work or illness will be dealt with at a later date.
The conditions for compensation are:
- the jobs are to be made redundant as a result of the closure of the business; ;
- the employer must be a small business (fewer than 25 employees, based on the actual number of employees, not full-time equivalents);
- the owner of the business reaches state pension age within 6 months of submitting the first request for authorisation to terminate an employment contract;
- a request for authorisation to terminate one (or more) employment contracts was submitted no later than 12 months after the death of the business owner;
- the transition payment has actually been paid to the employee(s) concerned;
- at the time of submitting the first request to terminate an employment contract, the entrepreneur has been with the company for at least two years;
- the employer has not already been paid compensation in connection with the winding-up of another company (the compensation will not be paid again upon the subsequent winding-up of another company owned by the same entrepreneur).
The compensation cannot be claimed retrospectively. Only payments made by the employer on or after 1 January 2021 are eligible for compensation.