Payroll - pitfalls and opportunities 

Several legal reasons require an employer to operate a payroll. The Companies Acts require proper books and records to be maintained, employment law requires employees to be provided with payslips and tax law requires PAYE deductions. Clearly, getting it wrong can mean both monetary exposures and reputational damage.

But payroll is easy, isn’t it? All you need to do is hire an in-house payroll operator or an external payroll bureau to run your payroll, most likely using one of the many software packages on the market. Sure, won’t that do all the work? If only life was that simple. The reality is that administering payments to employees can be a minefield with many tripwires along the way..

So what tripwires are there?

It would take a book to cover all of the potential tripwires that payroll entails. Some of the common ones involve:

• BIK items
• Taxable expenses
• Expatriate shadow payroll cases
• PRSI classes
• Pension contribution limits
• The treatment of termination payments
• In 2020, the temporary wage subsidy scheme (TWSS), and
• Remote working arrangements

Pre-year end actions

With year-end approaching, are there opportunities to do something to minimise the impact of problematic areas?

Yes is the answer to this. The paragraphs below discuss some potential actions.

BIK items

In strictness, the correct value of BIK items should be put through payroll in real-time. In practice, Revenue recognise that this is not always possible. They encourage employers to review BIK items periodically, usually quarterly, with corrective adjustments to be made in the next payroll run.

If you have not been undertaking such review exercises, now is a good time to so adjustments can be made pre-year end to get the position for the year correct.

Taxable expenses

While most expenses paid to employees can be tax free, some items should be taxed. For example, certain professional subscriptions that do not meet the Revenue criteria for tax free treatment. Also, mileage that is more than the Revenue approved rates. Again, now is a good time to review expenses and put any corrective adjustments through payroll.

Expatriate shadow payroll cases

If your company hosts assignees from a foreign group company, it should be accounting for PAYE on a shadow payroll basis for Irish workdays. Again, Revenue recognise that this is not always possible in real-time with periodic reviews of Irish workdays and corrective adjustments to be undertaken.
To ensure assignees’ year end position is correct and to facilitate their tax returns, it would be best for such a review to be carried out now.

PRSI classes

Regular reviews of PRSI Classes are always recommended. For example, if an employee reached age 66 during the year, the class should switch from Class A to Class J. A review now means any adjustments can be done through payroll thereby avoiding PRSI reclaims which can be time consuming.

Termination payments

Unfortunately, in the current environment, redundancies are becoming quite common. Calculating the applicable exemptions can be tricky. Care needs to be taken in this area. Advice on each case is recommended.

The TWSS

Over 50,000 employers participated in the TWSS. Given how quickly the scheme was introduced, there was a lot of confusion and mistakes, in particularly in the early days. Revenue are currently undertaking a reconciliation exercise. It is advisable that any requests for information from Revenue be responded to promptly. The temptation to leave such work until next year should be resisted.

Remote working

Remote working has become widespread in the Covid-19 pandemic environment. Our colleague, Ian Prenty, discusses the some of the issues that such arrangements can give rise to in the adjoining article on this page.


Tax efficient items

A question that arises regularly, in particularly coming up to Christmas, is whether there is anything that can save tax for employees? Here are a few items.

Employee pension contributions

Employees can make AVCs post year end, which they can claim tax relief for. Alternatively, they can increase their regular contribution levels and receive the tax relief through payroll. This needs to be done before the end of the year.

Tax on the TWSS

While TWSS amounts are taxable, and while they were delivered to employees through payroll, the rules specified that tax was not to be deducted under the PAYE system. Employees are supposed to account to Revenue directly for the tax, with collection to happen over a number of years via restrictions to future tax credit amounts.

Where an employer agrees to pay this tax for an employee, Revenue have indicated that they will not treat the payment as a BIK.

Small benefit exemption

A once per year gift in the form of a tangible item or voucher worth up to €500 is tax-free. In light of Covid-19, Revenue relaxed the “once per year” condition for awards to frontline or other key employees so more than one award can be made in 2020 provided the overall threshold of €500 is not breached.

If not already used, employers should consider this exemption now, as while there will be a €500 exemption in 2021, there is no carry forward for unused 2020 amounts – it’s a case of use or lose it!

Jenny Meade and Sarah Grange work in Deloitte’s client payroll bureau.