You’ve trimmed all of your costs (printing, advertising, entertaining etc.) and yet your bank overdraft is ever increasing. With no imminent prospect of an increase in trade levels, you are forced into reducing your payroll costs.

Rather than starting with lay-offs of valued staff, there are a number of less drastic alternatives that should be considered:

• Request staff to take their annual leave early
• Reduced hours
• Reduce full-time employees to part-time
• Salary adjustments

It is important to remember that all of the above options probably require the approval of the employee prior to their implementation. This is especially important if a formal written contract is in place.

The next step would be to offer temporary lay-offs, where you expect to be able to re-employ the staff within the foreseeable future. While on lay-off or short-hours, employees usually can supplement their income from social welfare for the days off which they usually work. As employer, you will be asked to sign off on the employee’s card for these days.

If you feel that you have no other option than to offer redundancy then the procedures are governed by legislation. Even with part-time work hours or temporary lay-offs redundancy may be applied for by the employee if the situation continues for at least four weeks, or six out of the last thirteen weeks. Redundancy must be paid to such employees unless you can within the next four weeks, offer thirteen full weeks of employment.

Selection

You must be able to demonstrate your reasoning for your selection of employees for redundancy. While it is reasonable to want to keep your best employees, best practice would suggest a proper rating system of all employees be used as part of the selection process.

Notice Period

Redundancy is payable to all employees with a least two years service. While not payable to employees with less service, it is important to remember that the minimum notice due to any employee is one week. The notice period increases with the level of service as follows:

• 2 -5 years – 2 weeks notice
• 5 – 10 years – four weeks notice
• 10 – 15 years – six weeks notice
• 15 years + – eight weeks notice

Remember the maximum of that outlined above and the notice per employee contract must be adhered to in each case.

Departmental Rebate

An employer of a continuing trade is entitled to a rebate of 15% from 2012 (previously 60% to 2011) of statutory redundancy payments. You must apply to Department of Enterprise, Trade and Employment after 100% of the payment has been made to the employee.

Tax Treatment

Statutory redundancy payments are specifically exempt from income tax and therefore do not go through the payroll system. You may decide to pay in excess of the statutory minimum – not only is this portion non-rebateable from the government, the employee is fully liable to income tax on this amount*.

* However a portion of this may be liable to exemption depending on the length of service of the employee.

Further information can be got on the National Employment Rights Authority website.

As the credit crunch bites, companies are finding it harder to get money out of their debtors and therefore taking longer to pay their suppliers. There are many methods of receiving cash for your debtors, either by offering an early settlement discount to your debtors and receive the money directly, or by factoring where you receive a loan based on the strength of your debtors and repay the loan when your debtor repays.

But what if you cannot afford to offer a cash discount? The opposite may similarly incentivise early payment – provision of interest on late payment. Under the Late Payments in Commercial Transactions (EU, 2002) you are entitled to charge interest on overdue business accounts. The interest rate charged can be anything up to 7% above the ECB rate (1.75% at 9/06/09). (ECB rate can be checked here). It is important to note that this is the maximum annual rate so the monthly interest charge at current ECB rates should be 8.75% x 1/12, or 0.729%.

When is an account late?

An account is late when it is outside the terms agreed at the date of sale, most commonly 30 days. If no terms were agreed and it is a repeat customer who regularly pays the invoice when received, then the invoice to overdue if not paid within this period. It is more difficult with new customers and therefore it is important that the terms of payment are stated on the invoice, or if it is a significant sale it should be included in the contract terms before any work is carried out.