Ex gratia, statutory and contractual: the three kinds of money
“Ex gratia” is Latin for “as a favour”. In employment it means a payment made without a legal obligation. When you are made redundant in Ireland, the money you receive falls into three boxes, and the tax treatment depends on the box.
| Payment | Who decides the amount | Tax |
|---|---|---|
| Statutory redundancy | The law: 2 weeks per year of service plus 1 week, pay capped at €600 a week | Tax-free |
| Ex gratia payment | Your employer, or negotiation, or a collective agreement | Taxable above the exemptions below |
| Contractual pay (holiday pay, arrears, pay in lieu of notice written into the contract) | Your contract | Taxed in full as normal pay |
Citizens Information defines the ex gratia payment as “a non-statutory redundancy payment paid by your employer, which is over and above the statutory redundancy payment”. Work out the statutory line first with the redundancy calculator; whatever is left of the package is ex gratia.
When ex gratia payments turn up
- Voluntary redundancy schemes. An employer who wants to cut numbers without compulsory redundancies can offer a package to encourage people to volunteer. The sweetener above statutory is ex gratia.
- Negotiated exits, including settlement agreements where you waive claims in return for a lump sum.
- Custom and practice. Some employers have always paid, say, four weeks per year. Where that practice is established, or a collective agreement sets it, you may have a contractual right to it.
Outside those cases there is no entitlement. The law fixes the statutory payment and your notice, nothing more.
How much of an ex gratia payment is tax-free
Revenue lets you use the highest single one of three reliefs. A lump sum paid under the terms of your contract gets none of them.
- Basic exemption: €10,160 plus €765 for each full year with the employer. Time before and after a career break counts, the break itself does not; part-time and job-sharing years count in full. Revenue’s own example: 20 complete years gives €10,160 + 20 × €765 = €25,460.
- Increased exemption: up to €10,000 on top, if you have not had a tax-free termination payment above the basic exemption in the previous 10 years and you are either not in an occupational pension scheme or give up the tax-free lump sum from it. Any pension lump sum you are due is deducted from the €10,000. Revenue’s example: 35 years and a €5,000 pension lump sum gives a total exemption of €41,935.
- SCSB (Standard Capital Superannuation Benefit): average annual pay over the last 3 years, multiplied by complete years of service, divided by 15, minus any tax-free pension lump sum. It usually wins for long service on higher pay.
Tax-free termination payments carry a lifetime limit of €200,000. Whatever is left after the relief is added to your income for the year and taxed at your marginal rate. USC applies to that part; PRSI does not.
Two worked examples
| Case | Ex gratia paid | Exempt | Taxable |
|---|---|---|---|
| 12 complete years, increased exemption already used | €20,000 | €19,340 | €660 |
| 20 complete years, no pension lump sum, first claim | €40,000 | €35,460 | €4,540 |
In the first case the basic exemption alone is €10,160 + 12 × €765 = €19,340. In the second, the basic exemption of €25,460 plus the full €10,000 increased exemption shelters €35,460 of the €40,000. Both sit on top of statutory redundancy, which is tax-free in full: for 12 years at €600 or more a week that is 25 weeks, €15,000. Put your own numbers into the redundancy tax calculator, which also runs SCSB.
Getting the tax right
- Ask for the breakdown in writing: statutory, ex gratia, notice, holidays. Each line is taxed differently.
- Your employer applies the exemption through payroll and may take account of the basic exemption. Revenue can tell them the correct tax-free amount.
- Overpaid? Claim through myEnquiries in Revenue’s myAccount. You must also declare the lump sum on your annual return.
- Pension decisions matter. Taking the increased exemption or SCSB interacts with your future pension lump sum. For a large package, paid advice earns its fee.
Frequently asked questions
What does ex gratia payment mean?
A payment made as a favour rather than under a legal duty. In an Irish redundancy it means the non-statutory part of the package: whatever your employer pays over and above the statutory redundancy lump sum of 2 weeks per year plus 1 week (weekly pay capped at €600).
Is an ex gratia payment taxable in Ireland?
It is not exempt like statutory redundancy, but it qualifies for relief. At least the basic exemption of €10,160 plus €765 for each complete year of service is tax-free. An increased exemption of up to €10,000 or the SCSB formula can shelter more. The balance is taxed as income, with USC but no PRSI.
Is my employer obliged to pay an ex gratia amount?
No. The law fixes only the statutory redundancy payment and your notice. An ex gratia amount is voluntary unless your contract, a collective agreement or established practice at your employer gives you a right to it.
What is the difference between ex gratia and statutory redundancy?
Statutory redundancy is the legal minimum, calculated by formula and completely tax-free. Ex gratia is the extra the employer chooses to add; it is negotiable, and it is taxable above the exemptions. After 10 years at €600 or more a week, statutory is 21 weeks, €12,600; anything paid above that is ex gratia.
Is pay in lieu of notice an ex gratia payment?
Only if your contract does not provide for it. Contractual pay in lieu of notice is taxed in full as ordinary pay. Where the contract is silent, the amount can form part of the termination lump sum and share the exemptions.
Sources: definition of an ex gratia payment, the list of tax-free and relievable payments, the three reliefs, USC and PRSI treatment and how employers apply the exemption from citizensinformation.ie, Taxation of lump sum payments (page edited 5 April 2022); exemption amounts, the career-break rule, the lifetime limit and the worked examples from revenue.ie, Lump sum payments, Basic exemption and Increased exemption (all published 24 April 2026); voluntary redundancy packages from citizensinformation.ie, What is redundancy? (page edited 11 August 2026). All read on 22 September 2026.