The employers' guide to Pay As You Earn (PAYE)
Being the owner of a small business usually means you have to look after every aspect of management. This is especially true in new businesses where you may not have the funds to hire or outsource.
However, sometimes hiring staff is an inevitable part of your business and therefore, you need to understand how the payroll function works.
It’s also important to know that if you are a Director of a Limited Company and you pay yourself a salary, this applies to you too. This is because your Limited Company will be the employer and you need to understand how payroll reporting works in Ireland.
Payroll reporting in Ireland
Sole Traders and Limited Companies in Ireland can hire employees to look after certain aspects of your job. You can hire people to look after operations, customer service, sales or marketing. You can hire people to do almost anything in your business.
If you are thinking about hiring staff, talk to our Client Service Team about outsourcing your payroll obligations to our Payroll Specialists. We’re always happy to talk you through our services for Irish and UK companies.
The definition of an employee in Ireland
Citizens Information Ireland defines people who are engaged on contracts of service or contracts for services:
- Contract of service: individuals who are are employees and are protected by employment legislation.
- Contract for services: individuals who are are independent or self-employed contractors. They are not considered employees and may not be protected by all employment legislation.
This is good to be aware of because there is a difference between hiring staff in-house and outsourcing.
For example, you could hire an in-house Payroll Team that will be employed by you and therefore have a contract of employment. Or you could outsource your payroll to a professional firm who will look after everything from payroll set up to payroll processing.
The Pay As You Earn (PAYE) system in Ireland
The PAYE system is a method of tax deduction on employees salaries in Ireland. Employers are responsible for calculating and deducting any income tax due from their employees’ wages every time the employee is paid.
- First, you need to make sure you are registered as an employer with Revenue before you hire any staff.
- One you have made your first hire, you need to pay your employee, e.g. weekly or monthly
- The payment details need to be submitted to Revenue on or before the payment is made
- The number of payroll submissions you make will depend on how often the employee is paid. E.g. if your employee is paid weekly, then you need to file weekly payroll submissions
- Revenue generates a statement of liability by the 5th day of the following month of your payroll submission. This is usually available on your Revenue Online Service (ROS) account or a letter will be sent to your business address. The statement will indicate your total PAYE liability due for that month and it is based on your payroll submissions.
- You can accept that statement and pay the liability due to Revenue.
If you would like to outsource your payroll to a professional, feel free to get in touch with our Client Services Team to discuss to our payroll services. We are always happy to help.
How to register as an employer in Ireland?
As mentioned, Sole Traders and companies in Ireland can register to be an employer with the Irish Revenue Commissioner (Revenue). If you are a Sole Trader, you need to personally register. If you are a company, your company will register as an employer.
The process is the same for both business structures: you need to complete a Tax Registration form and submit it to Revenue. You can also register as an employer online with Revenue Online Service (ROS), or myAccount.
This can be done at any time, but before you hire your first employee.
It’s good to know that if you have not registered as an employer but Revenue suspect your business should be registered, they can automatically register you.
If you think you should be registered as an employer, contact our Client Services Team for more information about how you can outsource your duties to a payroll specialist.
What taxes do employers deduct per employee in Ireland?
As an employer, you deduct taxes from your employees’ wages every time you pay them. This is also known as being deducted ‘at the source’.
Payroll details are reported to Revenue on or before each date the employee is paid. Employers hold the tax deducted and pay the tax liability to Revenue through an Employer’s PAYE Return.
Income Tax (IT)
The amount of income tax per employee depends on how much they are being paid. There are different cut-off points depending on the employees personal circumstances, such as are they single, married or widowed?
Before the income tax rate is calculated, employees are allowed to use tax credits or reliefs to reduce the amount of income that is subject to income tax. It’s important to note that employees need to claim their own tax credits and reliefs on their ROS account.
In other words, it is the employees’ responsibility to ensure that the correct tax credits are applied to their employment.
Revenue communicates an employees’ tax credits to employers. This is because each employee will have different personal circumstances that affect their income tax rate.
Employers deduct IT from their employee’s wages.
Universal Social Charge (USC)
If an employee’s income is above a certain threshold (€13,000 in 2020), the employer needs to deduct USC from employees’ wages.
There are different rates of USC depending on how much you are paying your employee.
There is certain income, such as payments from the Department of Employment Affairs and Social Protection (DEASP), that are exempt from paying USC.
USC rates are allocated to employees through Revenue. Again, it is your employees’ responsibility to tell Revenue of their personal circumstances.
Pay Related Social Insurance (PRSI)
PRSI is used to fund social welfare payments. It’s paid by employees and employers in Ireland. The value of PRSI paid depends on how much you pay each employee.
Each time an employee is paid – they make a ‘PRSI contribution’. In other words, PRSI is deducted from every wage. Employers collect PRSI contributions from employees pay on behalf of Revenue and pay the employees PRSI plus the employer’s PRSI when paying PAYE liability to Revenue.
PRSI contributions are made up of two payments:
- Employers’ PRSI. The amount of PRSI an employer pays which is added to an employers PAYE tax liability.
- Employees’ PRSI. The amount of PRSI which an employer deducts from an employees wages on behalf of Revenue.
Local Property Tax (LPT)
If your employee is the owner of a property, they can choose to pay their LPT at the source of their income (i.e. their job).
An employee can tell Revenue that they wish to pay their LPT at the source and in turn, Revenue will communicate the rate of LPT to deduct from their wage each month.
If you need help with payroll, contact our Client Services Team about our payroll services in Ireland. We’re always happy to discuss your needs and offer the best service for you.
We also have a Masterclass available for new businesses that focuses on what you need to know about hiring staff. Check out the details of our next Masterclass.
Revenue communicates through the Revenue Payroll Notification (RPN)
The RPN is how employers know how much tax each employee should pay. It notifies employers of any tax credits and cut-off point for your employees.
Generally, any payroll system (we use Brightpay) will retrieve the necessary RPN’s as part of their normal payroll process.
If you don’t use a payroll system, you can obtain RPN’s through Revenue’s Online System.
In some cases, employers or payroll specialists are unable to retrieve the necessary RPN and in this case, you must charge emergency tax on your employees wages.
If you need help processing payroll, we have a team of payroll experts who can help you pay your employees. Talk to us about your situation and we can tell you more about our payroll services in Ireland.
What do employers need to make payroll submissions to Revenue?
You need to ensure your employees are registered for PAYE
Employees need to have Personal Public Service Number (PPSN) and they should be registered for PAYE. If they are not registered, you will not receive their RPN. This means you will need to charge tax on an emergency basis.
You need to know the amount of gross pay
You should know the employee's gross pay (ie. pay before tax). Holiday pay, overtime, bonuses or commission is also included in gross pay.
Make sure the statutory deduction details (i.e. taxes paid) are correct
The RPN notifies employers of the income tax rate, USC, PRSI and LPT to pay per employee.
Make sure your employee payment details are correct
Employers need to establish when they pay employees - this is usually weekly or monthly. You should also have their correct bank details to make sure you're paying them securely.
Other details to report to Revenue
As an employer, you can operate an approved occupational pension scheme for your employees. If you operate a pension scheme, you need a pension tracing number. You can also offer benefit in kind (BIK) for medical insurance premium and you’ll need to input the total amount of medical insurance paid by you.
If this seems confusing, don't worry! Talk to our Client Services Team and find out how our payroll specialists can help you find the right services to help your business run smoother.
When do I need to file PAYE returns to Revenue?
Employers are required to file and pay monthly returns for the PAYE tax liability by the 23rd day of the following month, if filled online via ROS. For example, January returns are filed and paid by 23 February if you file and pay online.
You could also complete a paper form but you only have until the 14th of the month to file and pay the PAYE liability.
Talk to us if you want to discuss outsourcing your payroll function to our team of Payroll Specialists. We are always happy to talk to you about the best services for your needs.
What happens if you don’t file and pay PAYE returns on time?
Sometimes employers forget or don’t know they need to file these returns. Revenue will penalise businesses that don’t comply with the legislation and therefore incur financial consequence on your business.
You could be subject to:
- Interest on late payments of 0.0274% per day the filing and payment is late
- An employer could face a €4,000 fine for each breach of the PAYE rules and where that employer is a company, the Company Secretary of that company shall be liable to a separate penalty of €3,000 in respect of each failure!
What are the benefits of outsourcing your payroll?
Peace of mind that your payroll is compliant.
Our expert payroll team are always up to date with new Revenue regulations.
Save time and focus on other aspects of your business.
We'll take care of payroll so you don't have to.
Confidence that your employees are being paid correctly.
Avoid mistakes in payroll processing by outsourcing to professionals.
Greater security than operating payroll in house.
Don't worry about other employees finding sensitive information about other employees.
We offer Payroll Services for €41+VAT per month.
Our specialists can take care of your business’ payroll for you with costs as little as €41 + VAT per month for up to 5 employees.
If you would like to receive a quotation for our payroll services in Ireland, please fill out the form below to receive a proposal.
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