Are you in the process of hiring staff for your business? Are you a Sole Trader hiring employees or a director paying yourself a salary?
As a business owner, you need to register as an employer before you hire staff to take care of certain aspects of your business.
If you are a Sole Trader you don’t take a salary but you can become an employer and hire staff. If you are a director of a Limited Company then you can pay yourself a salary and therefore, you need to register the company as an employer.
This guide will take you through the Irish payroll system and explain some of the processes around paying staff in Ireland.
The definition of an employee in Ireland
Contract of service
Individuals are hired as employees and therefore, protected by employment legislation.
Contract for services
Individuals who are independent or self-employed contractors. They are not considered employees and therefore, they may not be protected by employment legislation.
PAYE registration in Ireland
Sole Traders and Limited Companies in Ireland can hire employees to look after certain aspects of your job.
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 suspects that your business should be registered, they can automatically register you.
What taxes do employers deduct per employee in Ireland?
As an employer, you deduct taxes from your employees’ wages every time you pay them.
When you pay your staff, you need to submit payment details to Revenue on or before the payment is made.
The payment details will report how much tax was paid so it’s important that the payroll calculations are done correctly. Employers hold the tax deducted and then 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 employee’s 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. Check out our guide on how to reduce income tax liability for more information.
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.
Universal Social Charge (USC)
If an employee’s income is above a certain threshold (€13,000 in 2021), the employer needs to deduct USC from employees’ wages.
There are different rates of USC depending on how much you are paying your employee.
USC rates are allocated to employees through Revenue. Again, it is your employees’ responsibility to tell Revenue about 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’ and it is deducted from every wage.
PRSI contributions are made up of two payments:
- Employers’ PRSI. The amount of PRSI an employer pays is added to an employer’s PAYE tax liability.
- Employees’ PRSI. The amount of PRSI which an employer deducts from an employee’s 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.
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 the cut-off point for their 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 the 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 consequences 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! Don’t take that risk, check out our outsourced company secretarial services.
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 your employees finding sensitive information about other employees.
We offer Payroll Services for €45+VAT per month.
Our specialists can take care of your business’ payroll for you with costs as little as €45 + VAT per month.
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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Kiera leads the Bookkeeping, VAT, and Payroll Teams at Accountant Online. Kiera has worked in the financial services industry for over 18 years. She is passionate about helping businesses to get their finances in order so they can get back to what’s important: running your business. Kiera holds a part-qualified accountant qualification from ACCA.