As a small business owner in Ireland, payroll is at the top of your to-do list. Yet, it isn’t an easy task and can take up a significant amount of your time. This guide will help you navigate payroll challenges you may be experiencing. Keep reading to learn how payroll operates and the basics of the PAYE tax system in Ireland. If outsourcing your payroll function is on your mind, we’ve got you covered!

How Payroll reporting operates in Ireland

When you hire employees to look after certain aspects of your business – operations, customer service, sales, marketing, etc. – you must include them on a payroll. It’s often an inevitable part of business, and thus, as a small business owner, you’ll need to know how payroll works.

 

Who's an employee?

The first step is to understand the definition of an “employee” in Ireland. This is one of the complexities of payroll that all Irish employers should understand. One key distinction in Irish employment law, that all small business owners in Ireland need to be aware of, is between “contract for services” and “contract of services.” While they sound similar, this difference determines who receives legal protections and benefits & is included on your payroll run, and who is deemed to be self-employed and therefore is outside the scope of your payroll run and does not benefit from employment protections.

The definitions

Contract of service: Individuals who are employees and are protected by employment legislation. This would be considered hiring “in-house.”

Contract for service: Individuals who are independent or self-employed contractors. People with this designation are NOT considered employees and may not be protected by all employment legislation. This would be considered “outsourcing.”

Whether an individual is your employee (contract of service individual) or not determines whether you include them on your payroll and pay them under the PAYE tax system.

Understanding the PAYE tax system

Q: What is the PAYE tax system?

A: The PAYE tax system is a method of tax deductions on employee’s salaries in Ireland. When employees are paid, employers must calculate and deduct income tax, PRSI and USC from their employees’ wages and pay this over to the revenue on behalf of the employee.

Q: How do I register as an employer with the Irish Revenue Commissioner (or “Revenue”)?

A: Registering with “Revenue” is the first step. You can’t even hire staff before you become a registered employer in Ireland. It does not matter whether you operate as a sole trader, partnership or a company: if you plan to hire staff you need to register your business with Revenue as an employer. Revenue have an eRegistration facility in place, and you must be registered for either Revenue Online Service (ROS) or myAccount to register as an Employer through this tool. Alternatively, revenue have paper-based applications available.

Q: How often should I pay my employees?

A: How frequently you pay your employees is ultimately up to you as the employer, and would typically be set as a standard weekly, fortnightly, 4-weekly or monthly payroll run. We generally recommend opting for a monthly payroll run, purely down to reducing the administrative burden so that you only have to run the payroll calculations, produce the reports, make submissions to the revenue and make payments once a month. If you outsource your payroll, you will find that the fees for a monthly payroll run are significantly less than the fees for a weekly or fortnightly payroll run.

Q: When do payroll details need to be submitted to the revenue?

A: You must submit payroll details to the revenue every time you make a payroll run, and the information must be submitted on or behalf the date you actually make payroll payments to your staff. The income tax, PRSI and USC liability on that payroll run will then be due for payment by the middle of the following month.

Q: How do I find out the tax liability?

A: Revenue will generate a statement of liability by the 5th day of the following month of your payroll submission. This statement is typically available on your Revenue Online Service account. The letter will also be sent to your business address. The statement will include your total PAYE liability (based on your payroll submissions) due for that month.

Q: What happens after I receive the statement of liability?

A: Once you receive your statement of liability, you should accept it and pay the liability that’s due to the Revenue. Employers must file and pay monthly returns for the PAYE tax liability by the 23rd day of the following month (if done online). Paper forms can be complete, but the deadline is earlier if this route is taken. Employers must file and pay PAYE liability by the 14th day of the following month if a paper form is used. If PAYE returns aren’t filed on time, then you may be subject to interest on late payments and fines for a breach of PAYE rules.

What taxes must employers deduct in Ireland?

As a small business owner in Ireland, you’ll be responsible for paying the tax liability to Revenue through the Employer’s PAYE Return. This section can help you understand what types of taxes you’ll pay. Each employee tax computation depends on how much the employee is being paid, and how the employee has allocated their tax bands and tax credits through their own myAccount profile on the Revenue website.

Income Tax (IT)

This tax will vary depending on the amount that the employee is paid. In 2020, the standard rate of income tax is 20%, and the higher rate is 40%. Generally, all employment income is subject to income tax, though it may be reduced depending on whether an employee has claimed tax reliefs (for example, pension contributions). When income tax is calculated, this is reduced depending on the tax credits available for each employee.

Since the beginning of 2019, new rules were introduced, and it is now the employee’s responsibility to ensure that the correct tax credits are applied. As the employer, you will download the employees tax profile from the revenue for each payroll run. Most PAYE employees will usually have a personal tax credit (€1,650) and a PAYE tax credit (€1,650) at a minimum as a deduction in your payroll run. However, if these do not appear in the tax profile download for a given employee, it is likely that the employee has allocated these credits to a separate employment elsewhere or they may have been allocated to a spouse.

Universal Social Charge (USC)

If an employee’s income is above a certain amount (ex: 13,000 euros in 2020), then you, as the employer, will need to deduct USC from their wages. The rates will vary based on how much is paid to the employee.

Pay Related Social Insurance (PRSI)

This type of tax is used to fund social welfare payments. It is paid by both employees and employers in Ireland. It will also depend on how much you pay each employee. PRSI contributions consist of two payments.

Employers’ PRSI: This is the employer’s contribution, and it is added to an employer’s PAYE tax liability. This is an additional cost the employer. If you hire someone at €20 per hour, the real cost to you is €20 per hour plus employer PRSI.
Employees’ PRSI: This is the PRSI that an employer deducts from an employee’s wages and pays over to the Revenue on their behalf. It is therefore not an additional cost to the employer.

Depending on what class of PRSI that you pay on behalf of an employee (majority of PAYE workers fall under the standard A class), this will determine what social welfare entitlements they have. Class A covers majority of the social welfare entitlements available, and will cover your employees for jobseekers benefit, illness benefit, maternity benefit and other common social welfare benefits, and importantly it builds their record for entitlement to state pension down the line.

Local Property Tax (LPT)

If your employee owns property, then they can choose to pay their property tax through the PAYE process. An employer’s responsibility in this would be to tell Revenue that the employee wishes to pay their LPT through the PAYE process and then communicate the rate of LPT so that it can be deducted from their wage.

Should you outsource your payroll function?

Payroll can be a challenge. As an employer, you’re responsible for your payroll function unless you choose to outsource it. If your attention is required elsewhere or you’re not sure you can get the details correct, then it may be time to look at the benefits that outsourcing can provide.

Employer responsibilities when making payroll submissions:

 

  • Ensure your employees are registered for PAYE
  • Know the gross pay amount
  • Ensure the statutory deduction details (taxes paid) are correct 
  • Understand the other details that you must report to Revenue if applicable
  • Make sure your employee payment details are correct

Benefits of outsourcing:

 

  • Knowing that your payroll is compliant with all of the current Revenue regulations.
  • Saving time and energy so you can focus on more important aspects of your business while experts take care of your payroll. 
  • Having confidence that your employees are being paid correctly and mistakes aren’t costing your small business money.
  • Recognizing the greater security that comes with outsourcing payroll. No sensitive information will be released about employees to employees.  

Final thoughts

Ready to say goodbye to all your payroll worries? As a small business owner in Ireland, you may be tempted to do it all, but payroll can take up a significant portion of your time. Take some weight off your shoulders and let SCK Group help.

Speak to us about your options. We provide the option to scale your payroll requirements. Speak to us  to learn more.