Can you explain the new PAYE Modernisation system?

On 1 January this year, PAYE Modernisation came into being. It was the biggest change to happen to the Irish PAYE system since the 1960s.

It means real time reporting (RTR) as Revenue now follows the money. In other words, every time an employee receives a payment, Revenue must be informed on or before the day of payment. Otherwise, you may attract revenue attention and fines.

The modernisation sees the abolition of the “P” forms such as P45, P35, etc. The introduction of the revenue payroll notification (RPN) replaced the old tax certificate, while the payroll submission report replaced the P35.

Before calculating payroll (regardless of frequency), an employer is obliged to request an RPN. If an out-of-date RPN is used, it is frowned upon by Revenue and you are at risk of a fine. Employers must notify Revenue via a payroll submission request of payments made to employees on or before payday. Any delays in getting these reports to Revenue are not welcome and can lead to fines and increase the risk of an audit.

Revenue introduced the variable direct debit in January. Under this scheme, Revenue obtained permission to request the value of your actual monthly liability from the employer’s bank account, usually three days before the end of the month. During the year, the collector general automated its systems and, as a result, upped its game in relation to delays in payment of PAYE, PRSI/ or USC by employers. Many received final demands and sheriffs’ letters for the first time.

If I (the employer) miss my payroll deadline or submit the payroll with a mistake, am I liable to be fined?

Last year, Revenue was very much in assistance mode, putting huge effort into assisting employers with the new regime. I believe this will change in 2020 with Revenue moving to a compliance approach. Therefore, I expect to see any breaches being addressed promptly leading to more fines and an increase in Revenue interventions, better known as audits. Such fines are substantial – €4,000 for every breach. If an employer does not have an up-to-date RPN for one or more of his/her employees, it may attract a fine of €4,000 for each one.

Before a contractor employs someone, what information do they need and what steps should they take?

A contractor needs to get the name, address and PPS number of an employee in advance of taking them on. They must then notify Revenue by requesting an RPN, normally via their payroll software.

If one has agreed a take-home pay with an employee, the RPN ?will determine the cost of employment. It is crucial that the RPNs are monitored as credits may go up or down depending on the individual’s circumstances. If an employer has agreed to pay gross (before tax), an RPN is requested by Revenue. The tax credit amount and standard rate cut-off point is less of a concern for the contractor as they do not influence the cost of employment.

Should contractors be paying staff a gross wage rather than a net wage?

Contractors need to stop quoting a net wage. It is almost impossible to quantify the overall cost to the employer at the onset.

A net pay agreement is where a contractor agrees to pay the employee a set amount “into the hand”. Such an arrangement requires the grossing up of pay to take into account the tax, PRSI and USC liabilities and, in some cases, even the local property taxes.

The amount of tax and USC due depends on the employee’s allowances, tax credits and USC thresholds. This can vary from one employee to another, so we encourage gross pay (before tax) agreements only.

It is vital that the contractor gets a PPS number for an employee as not having one increases the cost of having a “take-home pay” agreement in place.

It is also a good indicator of how net pay agreements do not serve a business well as they are difficult to budget.

Is there any tax-free incentive that contractors could avail of?

An employee may receive a voucher of up to €500 per year (in one sitting) tax-free. It can only be a voucher. It cannot be cash. This is a very cost-effective way of incentivising employees or thanking them for their commitment.