Your business is growing and you’ve decided to take on employees.
As an employer setting up payroll for the first time, you will need to know your obligations under Irish legislation, including the deduction of taxes related to employment and reporting payroll information to the Revenue Commissioners.
Under PAYE Modernisation that came into effect on 1 January 2019, employers must report taxes including income tax, pay related social insurance (PRSI) and universal social charge (USC) to Revenue on or before the first salary payment date.
So it’s crucial to the smooth running of your business to have an efficient payroll system in place before you become an employer to ensure your staff are paid on time, and you meet your legal obligations.
This article will help you with this. Here’s what it covers:
Running payroll in-house
If you have previous payroll administration experience, you may decide to run payroll in-house.
The advantages of doing the payroll internally are you maintain full control of your processes, and you can be more flexible with last-minute changes to timesheets or correcting any errors quickly.
It also may be more cost-effective to run payroll in-house, or you may also be concerned about security around employee records and financial details.
Whoever takes on the role should review the current legislation. While you can run payroll manually using spreadsheets to record and track payments, deductions and other information, it’s more efficient to use software to run your payroll.
If you decide to invest in software to run your payroll, it makes sense to choose a cloud-based payroll solution that is compliant with the Revenue system.
Operating a payroll system involves multiple tasks, including preparing payroll records, calculating hourly rates, expenses, and bonuses, so if you are expanding your company, it makes sense to look for someone with payroll expertise when hiring.
If your business is growing quickly, it may be more time-efficient to outsource payroll to a payroll services provider or specialist accountant, freeing up time for you and your staff to spend on sales, marketing and development of your company.
It might make more sense to outsource the payroll process to make sure your employees are paid correctly and on time as well as ensuring you meet your tax deadlines.
Choosing the right payroll provider
The first step is to decide whether you will be handing over the entire payroll responsibility to an outside provider.
You will still have to keep employee records, but you may decide to hand over most tasks to an outside provider, including reporting and submitting returns to Revenue.
The right payroll provider should make it easy for you to keep employee records, submit and amend timesheets, record overtime and leave and other payroll-related information.
Setting up payroll for your business
Under PAYE Modernisation, employers must report payroll information to Revenue at the time of payment.
There are two ways to report payroll to Revenue in real-time using your payroll software:
- Direct Payroll Reporting: Payroll software communicates directly with the Revenue Online System (ROS)
- ROS Payroll Reporting: Payroll software creates files that can be uploaded to ROS.
It makes good business sense to use payroll software – the investment will save you time and money in the long run.
However, if you don’t use payroll software that is compatible with ROS, you can register to get Revenue Payroll Notifications and then complete the relevant forms online. Find out more on the Revenue website.
Ideally, a payroll software solution can integrate seamlessly with Revenue’s system. It should be cloud-based to allow for real-time reporting.
It should also be secure and automate most functions, including calculating all payments and deductions.
Being cloud-based means you can use it anywhere and at anytime, which is ideal with remote working still very much on the agenda.
The software should have the following capabilities:
- Record your employees’ details
- Calculate your employees’ pay
- Report payroll information to Revenue
- Calculate deductions such as PAYE, PRSI and USC
- Calculate employer’s PRSI
- Work out statutory pay, such as maternity benefit.
Registering with Revenue
When you start hiring staff or taking on sub-contractors, you must register as an employer within nine days of your first employee’s start date.
If you’ve decided to incorporate your business and pay only yourself as a director, you must still register with Revenue as an employer.
If you have not registered as an employer, Revenue may automatically register you and issue you with a formal notice of registration. You have 14 days from the date of notice to object.
For ROS, go to My Services and select Manage Tax Registrations.
For myAccount go to Manage My Record and choose Tax Registrations.
As previously mentioned, you can submit manually by filling out a PREM form.
When you take a new member of staff, you will need to inform Revenue. Ask for your employee’s P45 or P60 and Personal Public Service Number (PPSN), so you can set them up on the PAYE system and on to your payroll system.
If you don’t have their PPSN, include the employee’s name, date of birth, address, and your employer reference number.
You must keep original records of all payments, deductions and other pay-related information for six years from the end of the tax year. Revenue may ask to see your records at any time and failure to keep full records can incur a hefty penalty.
Making a payroll submission
You can access ROS payroll functions from the Employer Services panel on the MyServices tab.
When you make a payroll submission, you must include payroll information for each paid employee, including new and departing employees, family members and directors.
If you hire someone who hasn’t previously worked in Ireland, they will need to be set up with a PPSN and you’ll have to register their job through myAccount.
Here’s the employee pay details that you need to include:
- Gross pay: This is inputted before any deductions. Gross pay includes wages, salaries or notional pay. It can also include bonuses, overtime, holiday pay and commission.
- Income Tax calculation: There are two tax bands for PAYE – a standard rate of 20% and a higher rate of 40%. The amount at which an employee pays the higher rate will depend on their personal circumstances and tax relief such as pension contributions. Calculate PAYE income tax on gross pay, excluding any pension contributions. Employees will be entitled to tax credits, which will reduce the amount of PAYE tax they owe.
- Universal Social Charge: Enter gross pay before any deductions, including pension contributions. Payments received from the Department of Social Protection are excluded from gross pay for USC calculations. You can find out more about USC rates at the Revenue website.
- Pay Related Social Insurance: Rates depend on your employee’s social insurance class. Most employees are in Class A – 4% on earnings over €352 – with a tax credit of €12 of earnings up to €424.
- Employer PRSI: There are two rates to pay for Class A employments: 8.8% for weekly earnings up to €398 and 11.05% for weekly earnings over €398.
- Benefit-in-kind: This includes a benefit you are paying for your employees, such as health insurance or a company car.
Other details to include in a payroll submission:
- The date on which the employee is paid will determine the submission period.
- For the first payment, the employee’s start date must be entered.
- Similarly, if an employee is leaving, you must record their last date of employment.
- The frequency of payment, weekly, monthly, fortnightly, etc.
- Employment identifier – if an employee has more than one employment for the same employer. This should be included in the first payroll submission for this employment.
Note: Overpayments or underpayments must be corrected in the subsequent payroll run.
Records and payments to be aware of
- Deductions including PAYE, PRSI and USC.
- Sick pay – employers have no legal obligation to pay employees on sick leave. However, many employers do have a sick leave and pay policy in place. Employees can apply for Illness Benefit, a state payment which is subject to waiting days.
- Note: different rules apply to COVID-19 enhanced Illness Benefit.
- Expenses and benefits such as company cars and uniforms.
- Commissions and bonuses.
- Holiday pay.
Other records that are relevant include:
Local Property Tax
Some employees may have opted to pay their Local Property Tax at source, so this will need to be entered into the payroll.
Employees can find out what rate they need to pay by checking the Local Property Tax page on the Revenue website.
If you have set up a health insurance package for your staff, include this in your payroll so the correct amount of tax is deducted under benefit-in-kind rules.
Employee contributions to a pension fund are deducted as a tax relief subject to age-related limits. As your workforce grows, you may consider setting up a workplace pension.
Employers in Ireland are not legally obliged to provide a pension scheme for employees. However, recent governments have considered auto enrolment, and it is likely to be introduced in the coming years.
Employees must receive a payslip on or before their payday. The documents must show gross pay (before deductions), deductions including PAYE, PRSI and USC, net wages (after deductions) and number of hours if wages are hourly-based.
Other information on the payslip includes the employee’s Personal Public Service Number (PPSN) and tax rate, and pay and deductions to date in the current tax year.
Payroll legislation to stay on top of
Before you set up payroll, you should become familiar with your obligations as an employer under Irish employment law.
When storing employee records, you must ensure you’re familiar with GDPR legislation and keep up to date with data protection regulations.
You should research the current employee’s rights. You can find out more about employment rights on the Citizens Information website.
Here’s a summary of the primary employment rights:
- National Minimum Wage: This has been set at €10.20 per hour since 1 January 2021 for employees over the age of 20.
- Trainee rates: These were abolished in 2019 and replaced by hourly rates based on age. For 2021, they are as follows:
- Under 18: €7.14
- Aged 18: €8.16
- Aged 19: €9.18
- Working hours: The maximum average working week for most employees can’t exceed 48 hours, according to the Organisation of Working Time Act 1997.
- Annual leave: Basic entitlement is four weeks for full-time workers or 8% of hours worked for part-timers.
- Public holidays: Employees in Ireland are entitled to nine paid public holidays or days in lieu if scheduled to work.
- Maternity leave: 26 weeks – as an employer, you are not obliged to pay maternity leave, but you may decide to include it in your policy. Employees who meet PRSI requirements receive a weekly payment of €245 for 26 weeks.
- Additional maternity leave: New mothers can also take an additional 16 weeks’ unpaid leave after the 26 weeks.
- Paternity leave: New fathers can take two weeks at any time within six months of birth or adoption.
- Parent’s leave: Two weeks’ paid parent’s leave for a child born or adopted on or after 1 November 2019.
As an employer, you are expected to keep up to date with legislation and fulfil your obligations under regulations.
Repeatedly violations of the PAYE regulations and/or failure to engage with Revenue are liable to a €4,000 penalty.
Top tips to get payroll runs right
Follow these tips to ensure your payroll processes run smoothly:
- Use payroll software to automate your processes so you can stay on top of your requirements and minimise errors.
- Keep records of payments and deductions and make sure they are up to date.
- Ensure your employees’ personal information is correct and current; for example, if an employee has been promoted or is taking parental leave, it may affect their salary payments.
- Have a clear and comprehensive policy in place for expenses, timesheets and overtime, etc.
- If you have a workplace pension in place, make sure you are entering these amounts correctly.
- Keep up to date with payroll legislation through your payroll software provider and the Revenue website.
- Encourage feedback from your employees on how processes can be improved upon. This will help you to identify issues early on before a problem escalates.
- Finally, submit payroll information on time to avoid delays and unhappy staff.
Conclusion on setting up payroll
Setting up payroll may seem daunting but it will become easier after you have completed the process the first time.
Choose payroll software that suits your company’s needs and helps you to fulfil your obligations under regulations.
Your payroll software provider will be able to assist you with issues related to functions within the system.
Revenue has a dedicated helpline for employers with queries relating to PAYE, PRSI, new employees and other tax-related information. You can also contact a Revenue representative via the MyEnquiries service on myAccount or ROS.
7 ways to take control of your business
Want to know how you can boss it at your business? Read this guide for top tips to help you master your business admin and truly take control.