Employee Benefits

The HR guide to tax-efficient employee benefits in Ireland

Oct 2, 2023
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To get the most out of your employee benefits budget, understanding Irish tax exemptions is a must. 
Tax-efficient employee benefits can give your company a competitive edge as you can offer better packages at less cost - while ensuring compliance with Irish tax laws. 
In this blog post, we'll look into the world of tax-efficient employee benefits in Ireland and explore strategies to maximise their impact so you can get the most from your compensation budget. 

Understanding the compensation tax landscape in Ireland

Before we explore the ins and outs of tax-efficient perks, let's look at the fundamentals of Ireland's tax scene. In Ireland, there are three main taxes or charges to an employee's compensation:

- Income tax: Like most income taxes, the amount employees pay depends on their tax band and how much they earn. Depending on an employee’s tax band, they’ll receive a tax-free allowance up to a certain amount. After that, the income tax rates in Ireland are 20% and 40%. 

- Universal Social Charge (USC): Most employees earning over €13,000 per year pay this. The rate is based on the employee's income. Employers and pension providers are responsible for deducting the Universal Social Charge from their employees' salaries.

- Pay Related Social Insurance (PRSI): This is the main source of funding for social welfare payments. Employees and employers both contribute to this. The amount of PRSI depends on the employee’s pay.

So that’s the contributions employees and employers have to make on salary. But what about employee benefits?

What are taxable employee benefits in Ireland?

Most employee benefits in Ireland are taxable. There are two main categories of benefit: 
Benefits in kind: These are typically something the employees don’t own but can use - such as a company car. As a car has a monetary value, it is taxed like income.
Employers must deduct Pay As You Earn (PAYE), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) from the employee’s pay for the value of a benefit.
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Money or benefit that can be exchanged for money: Such as vouchers or expenses paid by the company on the employee's behalf. In these cases, monetary value of the benefit needs to be declared and tax paid upon.
Although these are the two main categories of benefit, there is an exception...

What is the small benefit exemption scheme?

In January 2022, the Irish government introduced an important exemption for taxing employee benefits that HR managers need to know about - the Small Benefit Exemption Scheme. This is a tax-efficient way for employers to provide non-cash benefits or gifts to their employees. Neither the employees nor the employers are liable for tax or reporting (up to the value of €1000 per year per employee) on those benefits.
In order to qualify for this scheme, the benefits cannot be in cash, cannot be worth over €1000 and If more than two benefits are given in a year, only the first two will qualify for tax-free status. Unused allowance cannot be carried over.
Employers can make considerable savings by using the exemption to reward their employees. If you were to put a bonus of €1,000 through payroll for an employee who’s on the higher tax band and pays PRSI and tax, it would cost your business €2,313.54. By using the exemption, you can make potential savings of up to €1,313.54 per employee compared to putting it through payroll.

Read more about Ireland’s Small Benefit Exemption Scheme here.
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