THE global economic climate has left many employers in Jamaica unsure about the stability of their businesses. Many employers find themselves caught between a rock and a hard place — as they grapple with one of the hardest decisions any employer will ever have to make, and that is “letting go” some of their most valuable, productive and long-serving employees in order to cope with the present harsh economic realities.

The Employment (Termination and Redundancy Payment) Act (“the Act”) recognised the potential hardship of these employees and provided a way in which these long-serving employees could be compensated for the loss of their jobs, in the form a redundancy payment. A statutory redundancy payment is due where an employee is made redundant with at least two years of continuous service. Seasonal workers may also be entitled to a redundancy payment in circumstances where the seasonal employee has been employed for two or more consecutive seasons on a continuous basis.

An employee is normally entitled to a redundancy payment where his contract is terminated because the employer has ceased, or intends to cease to carry on business in which the employee was employed; or where the employee is no longer required to carry out work of a particular kind; or where the employee has suffered personal injury which was caused by an accident arising out of and in the course of his employment or where the employee has developed a disease prescribed under the Act; or where a seasonal employee attends his workplace at the beginning of any season in accordance with instructions given by his employer and the employer fails to provide him with employment.

An employee who is dismissed by reason of redundancy must be provided with a written statement indicating how the redundancy payment is calculated. An employee (except a seasonal employee) is entitled to either two weeks’ pay for the first ten years of employment and three weeks’ pay for each succeeding year or 2/13 of his total salary earned in respect of the last 13 weeks of employment and 3/13 for each succeeding year, whichever of the two are greater.

The redundancy pay for seasonal employees is the sum arrived at by multiplying two weeks’ pay (three weeks after ten seasons) by the number of consecutive years of continuous employment.

Redundancy payment must be calculated using earnings received in the last week of employment. These payments are also taxable. If the relevant taxes are not deducted from the redundancy payment, the employer may be liable for any tax payable. There are, however portions of the payment which are exempt from taxes.

The Income Tax (Termination of Employments) Order 1971 provides an exemption for certain proportions of the payment in instances where the period of continuous employment is not less than three years.

The formula used to calculate the tax- free portion is very scientific and straight- forward. It is just a matter of plugging relevant numbers in the equation provided below.

For employees who have been continuously employed for not less than three years and whose average emoluments for the last three years of employment were more than $7,000 per annum —the tax free portion should be 2 1/4 times average salary for the last three years times number of years of service divided by 33 1/3.

Where the employment was for 33 1/3 years or more — the tax free portion would be 2 1/4 times average terminal pay for the last three years.

Statutory deductions will be applied in the normal way to the portion of the redundancy payment that is not exempt under The Income Tax (Termination of Employments) Order 1971.

Consequently, before handing over oftentimes “hefty” redundancy payment cheques it behoves employers to ensure that these payments are accurate and all the guidelines provided by the law are adhered to.

Natasha Rickards is an Associate at Myers, Fletcher & Gordon and is a member of the firm’s Litigation Department. Natasha may be contacted via natasha.rickards@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.