The following is a brief introduction to payroll including how to register the business and employees, how best to operate a payroll system and details of what Revenue returns are required.
Registering as an Employer
The first step in registering employees is to register the business as an employer. This is usually done when first registering for tax by submitting either Form TR1 (sole-traders and partnerships) or Form TR2 (companies) to the local tax district. Tax registrations are now mostly completed online using the Revenue Online Service – ROS at www.revenue.ie .
Registering an Employee
When employees start work, they should provide you with one of the following:
- Completed Form 12A if taking up employment for the first time (in Ireland)
- Form P45 from their previous employment
As the employer, you will then need to forward either Form P45 or Form 12A to your local tax office who will send you details of each employee’s tax credits and standard rate cut-off point.
If an employee has worked previously (in Ireland) but doesn’t provide you with a Form P45, you should notify the tax office immediately, providing details of the new employee’ name, PPS number, etc or complete a Form P46 (on paper or on ROS).
Until the Notice of Tax Credits and Cut-Off is received from the Revenue Commissioners, employees should be taxed using the tax credits and cut off point on the P45 (on a week 1 basis) or on the emergency basis if no P45 has been received.
Tax credits and cut-off figures depend on the employee’s personal circumstances and may differ significantly from one employee to the next. Cut-off refers to the point where earnings become taxable at the higher rate of tax. Tax credits are deducted at the end of the tax calculations and reduce the tax payable accordingly.
Warning: you should always agree a gross pay with your employees rather than a net pay.
PAYE, PRSI and Universal Social Charge are calculated on an employee’s gross pay, i.e. pay before any deductions are made, while net pay is what the employee receives after PAYE, PRSI, Universal Social Charge and other deductions, i.e. take home pay.
If an employer agrees a net pay with an employee then in effect the employer is agreeing to pay the employee’s PAYE/PRSI for them. This also means that if the income tax rates rise or an employee’s tax credits or standard rate cut-off point change the employer will have to pay any additional tax arising.
Calculating tax and net pay
For each payroll period (whether weekly, fortnightly or monthly), you will need to calculate three types of taxes – PAYE income tax, PRSI, Universal Social Charge – each with their own method of calculation.
If you have many employees with varying rates and hours worked you should give serious consideration to using payroll software which will calculate employees net pay, produce payslips and give you the information for Revenue returns. This will save time and potentially reduce errors. However, the outputs from payroll software are only as good as the information entered into it, so it is still a good idea to know how the PAYE system works in general terms.
If you are not using payroll software you can use a spreadsheet or calculate the figures manually. Remember that you need to give your employees payslips no matter which system you use.
The methods of calculating income tax, PRSI, Universal Social Charge and net pay are too complex to fit into one blogpost. However, Revenue have a comprehensive guide which can be found on their website www.revenue.ie (see update below).
Benefits in kind
Benefits in kind, such as private use of a company car, free or subsidised accommodation and preferential loans, received from an employer to an employee whose total remuneration (including benefits in kind) is €1,905 or more in a tax year, are taxable through the payroll.
When an employee leaves
When an employee leaves during the tax year, the employer must provide him/her with a Form P45. This form confirms the employee’s gross pay, tax, universal social charge deducted and PRSI contributions from the start of the tax year until the date of leaving.
Monthly Revenue Returns
A monthly Return (Form P30) must be submitted to the Revenue Commissioners setting out details of the total PAYE/PRSI arising for that month. The P30 must be submitted and paid before the 14th day of the following month, e.g. the P30 for January must be submitted by 14th February and so on.
All companies, partnerships and some individuals are now required to pay and file their tax returns electronically using ROS. In this instance extended deadlines to the 23rd of the month are in place.
Employers with low PAYE/PRSI liabilities may be eligible for filing P30s quarterly.
If paying via direct debit, a standard payment is made each month directly from the employer’s bank account. It should be noted that interest and penalties can arise if the amount paid under this system is not sufficient and therefore it may be necessary to increase the monthly payments to ensure the correct PAYE/PRSI is paid. The advantage of paying by this method is that there is no need to submit monthly P30 Returns but the annual P35 must be submitted in the normal manner (see below).
End of Year Returns
A Form P35 – Annual PAYE/PRSI Return must be submitted at the end of each calendar year detailing the PAYE/PRSI arising for each employee. The deadline for submission of the P35 is usually around 15 February. The completed P35 must be filed together with payment in settlement of the balance of PAYE/PRSI due, if any. Again, extended deadlines can be availed of by using ROS.
A Form P60 must be given to every employee who is employed on 31 December (except those who received a P45 on 31 December). Among other things, this form contains details of the employee’s gross pay, tax, universal social charge and PRSI contributions for that year.
If you have read the Revenue’s payroll guide linked to above, you will know that the operation of payroll has become quite complicated, particularly with the introduction of the universal social charge and additional PRSI subclasses. There has been some talk about simplifying the tax system in future budgets but in the meantime, if you are anyway unsure about payroll you should consider engaging a bookkeeper or accountant or attending a payroll course yourself. Errors in payroll can prove very costly.
If your employer does not operate an occupational pension scheme or where there are certain restrictions applying to the occupational pension scheme, your employer is required by law to ensure they provide access to at least one standard PRSA. This rule applies to all employers irrespective of the number of employees and the status of those employees i.e. full time or part time.
Local Property Tax
Property owners can opt to phase the payment of their Local Property Tax (LPT) for 2014. One of the phased payment options available is deduction at source from salary or occupational pension.
To opt for this method you are required to provide your employers name and tax registration number. If you select this option payment will be spread evenly over the year.
Employers who have been issued with an instruction to deduct LPT on employer tax credit certificates (P2C) should declare the relevant LPT on their P30 and P35 returns.
Update March 2014
A summary of the main PRSI and USC rates are as follows:
PRSI CLASS A (most employees)
|€38 – €352||A0||NIL||8.5%|
|€352.01 – €356||AX||4%||8.5%|
|€356.01 – €500||AL||4%||10.75%|
|More than €500||A1||4%||10.75%|
PRSI Class S (Self-employed)
|Up to €500||S0||4%||NIL|
|More than €500||S1||4%||NIL|
A full listing of all PRSI classes and rates can be found on www.welfare.ie.
Universal Social Charge
For those earning over €10,036 per annum the USC is calculated on weekly salaries as follows:
First €193 per week at 2%
Next €115 at 4%
Balance at 7%
As an example, if you earn €500 per week, USC is calculated as follows:
€193 at 2% = €3.86
€115 at 4% = €4.60
€192 at 7% = €13.44
Total USC = €21.90
A list of the most common credits and cut-off points can be found here.
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