WRC found that PAYE applied to a resignation bonus and that no unlawful deduction arose.

The Complainant stated that she tendered her resignation in early September 2024. She asserted that, due to her involvement in a major customer contract, the Respondent’s Operations Director requested that she defer her resignation until the end of November 2024. She agreed to this arrangement on the basis that she would receive an additional two months’ salary, payment of her annual 10% bonus, and the discharge of her university fees. She further contended that it was expressly represented to her that the bonus would be paid in a “tax efficient” manner, effectively akin to a redundancy-style payment. However, following her departure, the bonus was processed through standard payroll and taxed under PAYE. She maintained that this resulted in a net loss of approximately €3,259. She relied on an email from the Operations Director as evidence of the agreement and submitted that the Respondent had breached the terms of that agreement by failing to offset the tax liability.

The Respondent submitted that the Complainant had resigned from her employment and was not made redundant, and therefore any payments made on termination were subject to normal statutory taxation requirements. It argued that the bonus was correctly processed through payroll and taxed under PAYE in compliance with Revenue obligations and the Payment of Wages Act 1991. The Respondent contended that it had no lawful discretion to classify the payment in a tax-exempt or redundancy-style manner where no redundancy situation existed. It was stated that any alleged special arrangement concerning final payments would have required formal approval from the General HR Manager, which had not occurred. The Operations Director was not authorised to make binding representations on taxation treatment, and his reference to a “tax efficient” payment was characterised as informal and non-binding. Accordingly, the Respondent maintained that all deductions were lawful statutory deductions.

The Adjudicating Officer examined the complaint within the framework of s.5 of the Payment of Wages Act 1991, which permits deductions required by statute, including PAYE taxation. It was accepted that an agreement had been discussed between the Complainant and the Operations Director regarding a “tax efficient” bonus payment. This was found to amount to a misunderstanding rather than a binding contractual variation. The Adjudicator noted that no consultation had taken place with HR or Revenue regarding any alternative tax treatment and that the payment arose in the context of a resignation rather than redundancy. In those circumstances, the Respondent was legally obliged to apply PAYE to the bonus. The Adjudicator concluded that the taxation of the bonus constituted a statutory deduction authorised by law and could not amount to an unlawful deduction from wages. Consequently, the complaint under the Payment of Wages Act was found not to be well founded.

Employers should exercise caution when making representations regarding termination payments, particularly where references are made to “tax efficient” arrangements. Any assurances relating to the tax treatment of bonuses, ex gratia sums, or termination payments should be expressly set out and subject to HR and Revenue compliance. Further, clear internal governance is essential. Authority to agree remuneration or termination packages should be confined to designated HR / senior management. Employers should ensure that line managers understand the limits of their authority (and the legal implications of discussing tax treatment with employees). Finally, employers must ensure strict adherence to statutory taxation obligations. Payments processed through payroll must be taxed in accordance with PAYE unless a lawful exemption applies and has been properly verified.

The full case can be found here.