Payroll. It isn’t easy you know. I see it as a mixture of IT, Payroll, Tax, and HR. Payroll is something I love doing. There’s great satisfaction in helping clients and their employees. A small difference in take -home pay can prompt a call to find out what’s going on.
We are in an era of an “employee’s market.” Lots of jobs out there and opportunities at the touch of a button. It’s hard to get new staff. Plus, there’s a time and money investment to get a new team member up to speed. As such, retaining existing staff is important for your business. A quality payroll offering is the minimum any employee will expect. It isn’t easy to get it right all the time.
We are going to take a look at some of the common queries that come into me that include
- Holiday entitlements
- Bike to work scheme
- Statutory Sick Leave
- Department of Social Protection Payments
- Bank Holidays
I got a query from David who ceased his employment at the end of November last. He worked over 1365 hours in 2023 and was of the view that this entitled him to his full annual leave of 24 days.
The 1365-hour rule can be confusing. If you work those hours or more, you are a full-time employee for annual leave entitlements. However, the overriding rule is set down in the Organisation of Working Time Act, 1997. This provides that
” Most employees are entitled to four weeks annual holidays for each leave year. But with pro-rata entitlements for periods of employment of less than a year”
David is a full-time employee. But as he only worked for 11 out of the 12 months then he’s entitled to 11/12th of his annual leave. That’s 22 days and not the full 24 days.
Bike to Work Scheme
I recently received a good few queries on the bike to work scheme. If you want to buy a bike and safety equipment for a director or employee, it works like this
- A participating bike shop will issue an invoice to your company or business.
- Your company pays that from the business bank account
- Deduct the cost of that over a period of up to 12 months from the employee’s gross pay
As an employer, you can’t claim the VAT input, so the cost includes VAT. Mary asks you if she can avail of the bike to work scheme as she spotted a bike for €1,236 in the local bike shop. This includes safety equipment like a cycling helmet and reflective clothing. The bike shop issues an invoice to your business. Mary is happy to enter into a salary sacrifice arrangement with you over 12 months.
Mary gets paid monthly. So, for the next 12 months, you reduce Mary’s gross pay by €103 each month. Given that Mary is a higher rate taxpayer she would pay tax at 52% on that amount each month. As a result, the net cost to her is 48% of the salary foregone.
|Cost to employer
|Salary reduction period months
|Reduce monthly gross pay by
|Tax cost of gross pay at 52%
|Cost to Mary at 48%
There are three limits depending on the type of bicycle purchased
- €3,000 on cargo and ecargo bikes
- €1,500 on pedelecs and ebikes
- €1,250 for other bikes
The above limits include the related safety equipment. If the cost to the employer exceeds these limits. The excess cost is liable to BIK. If the employee pays the excess cost, there is no BIK.
Statutory Sick Leave
“Why did I only receive sick leave of €110 per day if I am earning €25 per hour for an 8-hour day?”
“Why didn’t I get paid for my sick leave when I was sick?”
These are two queries that I recently got from employees of clients. To qualify for sick leave, you will need to provide your employer with a doctor’s cert. Without a cert, your employer doesn’t have to pay you for that day.
The amount you get is 70% of your regular pay but no more than €110 per day.
|8 hours x €25
|70% of that
|Max cap per day
In 2024 Statutory Sick Leave will increase to 5 days from 3 days in 2023. While on certified sick leave the employee is accruing their holidays. To qualify for sick pay from your employer you’ll need to be in employment for the last 13 weeks.
Department of Social Protection Payments
One of our client’s employees, Pat, claimed Parental Leave. Pat got a payment from the Department of Social Protection. On returning to work the amount of tax and USC paid on his next wage payment was higher than usual. He asked me why he paid more tax than normal.
Payments from the Department of Social Protection are not taxed by them. So, you receive the full payment. However, most payments are liable to tax. Revenue collects the tax by reducing your tax credits and standard rate cut-off point.
Let’s assume for 2024 Pat has a standard rate cut-off point of €42,000 and tax credits of €3,750. He gets €500 as a parental leave payment. Revenue will issue a new tax credit cert to his employer with the following changes.
- Standard rate cut off point reduced by €500 from €42,000 to €41,500
- Tax credits reduced by €100 [€500 x 20%] from €3,750 to €3,650
We had a very interesting case last year about when fixing a client’s tax credits and lower rate band. Initially, the client had no credits or lower rate band due to an incorrect State Pension amount. The pension was a bizarre figure of €196,259 when it should have been €14,060.
After what length of time is an employee entitled to Bank holiday entitlements?
If you are a full-time employee, you are entitled to Bank Holidays straight away. For part-time employees, you need to work at least 40 hours in the previous 5 weeks.
The above is a quick snapshot of some of the common queries that I answer for clients. Payroll is an area of constant change. This year sees an increase in the minimum wage, sick pay days, and an increase in PRSI later in the year. Plus, we have the new Enhanced Reporting Requirements.
There’s a lot for employers to know and to get right. It can be painful and costly if you get this wrong. Is now the right time for you to outsource your payroll? Reduce your stress levels and get things right for your employees. As I said at the outset payroll isn’t easy.
Interested in outsourcing your payroll function? If so, start here