Wednesday 18 July 2018

How do I plan ahead for the eventual retirement of employees from our family business?

It’s important to plan ahead carefully and make sure staff are fully informed about retirement
It’s important to plan ahead carefully and make sure staff are fully informed about retirement

Caroline McEnery

Q I have a small- to medium-sized family business and have to admit that I have little knowledge of HR. I have been hearing and reading a lot about retirement recently - changes to the age of retirement for example, and now I am worried. I have good relations with all team members and want to be as fair as possible. We have a young workforce. Is there any advice you could give on thinking ahead on staff retirement?

A The issue of retirement has come to the forefront recently due to the increase of the state pension age from 65 to 66, and the impending further increases to 67 and 68 in 2021 and 2028 respectively. You are in a prime position given that you have a young workforce and can be proactive in addressing this issue.

Retirement age v pension age?

You might not know this, but there is no single fixed mandatory retirement age for employees in Ireland. An employee's contractual retirement age is an entirely separate issue to the age at which employees are entitled to draw down their state pension. You, as an employer, are lawfully entitled to set individual retirement ages in your contract of employments.

You are permitted to retire an employee on reaching a set retirement age - if this age is clearly outlined in the contract of employment and can be objectively justified.

Retirement age?

Your company retirement age should be set out in the contract of employment. Your retirement age can correlate to the state retirement age (currently 66) or the retirement age specified in any pension scheme, if in place. There is a retirement age set by law for some public servants. Firefighters and gardai, for example, have earlier retirement ages.

Objectively justified: The Equality (Miscellaneous Provisions) Act 2015 provides that you must objectively justify your mandatory retirement age. The retirement age you set needs "to achieve a legitimate aim" and the means of achieving the aim should be both appropriate and necessary. Some objectively justified reasons are:

  • To create opportunities in the labour market;
  • Health and safety concerns for the public and employees;
  • Encouraging recruitment and promotion of younger people;
  • Motivation through the increased prospect of promotion;
  • Preserving the dignity of older workers;
  • Intergenerational fairness.

Your paper trail: If you are setting a retirement age it should be objectively justified as explained above. You should have prepared a careful paper trail showing why this chosen age [for example 66] is objectively justified. This should be reflected in a policy within your company handbook or policies and procedures document so that all team members know about it.

How to: Once the above is done you should write to the employee approximately 12 months before their retirement age informing them of their upcoming retirement. This is important so as not to surprise the employee. Once the employee is within six months of the planned retirement you should meet to discuss arrangements including: the date, anything to help the transition for the employee, handover plans and any other details. It is vital you ensure this meeting is followed up in writing for clarification purposes.

Fixed-term contract after retirement

If you receive a request from one of your employees to work beyond their retirement age you need to consider the precedent you are setting.

Most importantly you need to consider the need to ensure business requirements are met. If you chose to offer your employee a fixed-term contract (with a start and end date) you must objectively justify it as explained above. It is simply not enough to say the contract is for a year and then ends. It must have a business reason attached and explained. Make sure you have a paper trail - remember, if it's not in writing it didn't happen.

Caroline McEnery, managing director of The HR Suite, is a member on the Low Pay Commission and is an Adjudicator in the Work Place Relations Commission. She is also author of The Art of Asking the Right Questions.

Sunday Indo Business

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