Payroll changes for Irish employers to know about in 2025

It’s 2025. Another new year means you need to ensure your business is set up for payroll changes, as a lot of the measures in Budget 2025 came into effect in January.

Fortunately, for employees, they will receive more money, and with inflation lower than recent years, it should go a little further.

For employers, there could potentially be increased costs.

This article outlines the payroll adjustments that came into effect in January 2025, the start of the new tax year, as well as other significant changes.

Here’s what is covered:

Changes in income tax

There is an increase of €2,000 to €44,000 in the point at which employees pay the higher rate of tax of 40%.

In addition, personal tax credit, employee PAYE tax credit and earned income credit have all gone up by €125 to €2,000.

Using the taxback.com calculator, this means a single PAYE employee on a salary of €50,000 is better off by €871.12 in 2025, compared with 2024.

Increase in the minimum wage

While there is more money in employees’ pockets, if you are a company with a large number of workers on the minimum wage, your wage bill could be significantly higher.

The minimum wage has increased by 80 cents per hour to €13.50 (for anyone who is aged 20 and over; for those under 20, they get lower rates)—that’s a 6% rise.

And this is after significant annual hikes in the minimum wage in recent years.

Liz Lucid, managing director of Galway-based Monaris Accounting, feels the minimum wage hike will be tough for certain businesses.

She says: “For many businesses, rising costs and mounting administrative pressures remain significant challenges.

“The increase in the minimum wage is particularly tough on key sectors like retail and hospitality, which are employment-intensive and already operate on tight margins.

“The rise to €12.70 in 2024 from €11.30 in 2023 marked a 12.4% increase, with a further 6.3% rise to €13.50 in 2025.

“For businesses still recovering from Covid-19, these increases intensify payroll pressures in 2025.”

Also, while it does not affect your wage bill, the Universal Social Charge (USC) threshold also rises in line with the increase in the minimum wage. This is to ensure that an employee on the minimum wage does not pay USC.

The new threshold is €27,382, an increase of €1,622.

Also, the 4% rate of USC reduces to 3%. The entry point for this rate increases by €1,622, in line with the increase to the minimum wage, so it applies to income between €27,382 and €70,044.

Pay Related Social Insurance (PRSI) changes

In line with the increase in the minimum wage to €13.50 per hour, the upper threshold for paying the 8.9% Class A rate of employer PRSI increased from €496 to €527 per week from 1 January 2025.

Class A applies to most workers in Ireland.

Also, from 1 October 2025, there will be a slight increase in all PRSI rates.

The employer PRSI rate will increase from 11.15% to 11.25% where weekly income is more than €527 and from 8.9% to 9% where weekly income is less. The employee PRSI rate will increase from 4.1% to 4.2%.

Potential increase in sick pay

Another potential increased cost for you as an employer is an increase in sick pay.

Statutory sick pay was introduced in 2023 and it’s currently five days a year.

It was due to increase to seven days in 2025 and 10 days in 2026. However, this may not happen.

There is an awareness that employers and particularly smaller companies are facing an array of increasing costs, and the government is currently reviewing the impact of statutory sick leave before deciding on any further increases for 2025 and 2026.

Introduction of pension auto-enrolment

While an increase in statutory sick pay looks likely to be put on the long finger, pension auto-enrolment is scheduled to come into effect on 30 September 2025.

This is a major change and significant preparatory work will need to be done.

You should start thinking about the implications now and if a significant number of your employees currently have no pension set up, it may lead to significant increased payroll costs on a climbing scale over the next 10 years.

Liz at Monaris Accounting is concerned that pension auto-enrolment will place a heavier burden on smaller businesses in particular.

She says: “Smaller employers face not only financial strain, but also the complexity of implementing this scheme—stretching already limited resources.”

Increase in benefits under Small Benefit Exemption Scheme

While not a direct payroll cost, under the Small Benefit Exemption Scheme, employers are now able to give as many as five non-cash benefits in a year worth up to €1,500—up to now it was a €1,000 limit.

Social welfare increases that benefit workers

There are also several increases in social welfare payments that may benefit workers.

Increase in maternity, paternity, parent and adoptive benefit

There’s a €15 increase in weekly payments of maternity, paternity, parent and adoptive benefit from January 2025.

This brings the payment up to €289 a week, from a previous €274 a week.

Increase in income threshold for Working Family Payment

The Working Family Payment is a weekly tax-free payment to people on low pay who have at least one child.

Since January 2025, the Working Family Payment income limits increased by €60 a week for all family sizes, which means more families will be eligible for the payment.

Introduction of pay-related unemployment benefit

Ireland has long been criticised by organisations such as the OECD for only having a standard unemployment payment for workers who lose their jobs.

However, from 31 March 2025, pay-related benefit is to be introduced for the first time.

This will provide a bigger safety net for workers on higher salaries who have worked for more than five years and who lose their jobs.

Under the scheme, a person will get a jobseeker’s payment rate linked to their previous employment income.

Weekly rates of payment for those who have paid at least five years of PRSI contributions will be set at 60% of their previous earnings, up to a maximum of €450 for the first three months.

After that, the rate will be set at 55% of their earnings, up to a maximum of €375 for the following three months.

Another three months will be paid at the rate of 50%, up to a maximum of €300.

Update your payroll system to account for changes

If you have not already done so, you need to immediately update your payroll software to account for these payroll changes.

You should also check with your vendor, as this might happen automatically if you’re using cloud software.

Final thoughts: Outlook for 2025

For employees, Budget 2025 means more money in their pockets and the boost in the January pay cheque will be very welcome, especially after the excesses of Christmas.

However, for employers, it’s not all positive.

There are potentially increased payroll costs such as from the increase in the minimum wage and the introduction of pension auto-enrolment in September 2025.

This will generally affect smaller companies more, as they are more likely to have employees on the minimum wage and also more employees that are not signed up to a pension.

Liz at Monaris Accounting sees first-hand the impact of rising costs on her smaller clients.

She says: “Unlike larger companies, small businesses may lack the capacity to absorb sudden cost increases and regulatory demands, leaving them vulnerable.

“Targeted government support, including grants and streamlined compliance requirements, is essential to their existence.”

She points out there are measures in the Budget that should help small businesses, such as:

• The reduction in personal tax bands
• Increased VAT registration thresholds
• The expanded scope of startup relief for new companies.

However, the government must continue to be vigilant in creating the right business environment for smaller businesses to succeed.

Liz concludes: “Small and medium-sized enterprises are the backbone of our communities and proactive policies are vital to protect their role in driving local prosperity.

“I believe that, with the right supports, these businesses can thrive rather than merely survive, benefiting not only the business owners but also their employees, suppliers, customers and the wider local community.”