Running payroll in Ireland

Although Ireland’s tax system only operates with two tax rates, the different tax credits available for employees might confuse foreign employers at first. However, processing payroll is simplified by the Irish tax authority which provides employers with detailed tax-relevant information for each employee. 

Payroll-related filing and payment obligations can be fulfilled via an online system which also enables the legally required real-time reporting which was introduced in 2019. The social security burden on employers is quite low compared to other European countries.

Before employers can process payroll in Ireland, they have to register as an employer for the national PAYE (Pay As You Earn) system as well as for PRSI (Pay Related Social Insurance). The competent authority is the Office of Irish Revenue Commissioners. Companies with Irish-resident directors can use the eRegistration system. Otherwise, they have to register by handing in the necessary paper forms. After registration, the Revenue Office issues an Employer Registration Number.

It is important that the registration process is completed before the first employee starts their work at the company because it is only then that employers can receive the tax information needed to process payroll correctly. Additional information needs to be submitted to Revenue within 9 days. It is also recommended to create an account with the Revenue Online Service (ROS) for filing and payment purposes. 

Every new hire (and every leaver) must be declared to the Revenue Commissioners. Employees who start their first job in Ireland are responsible for registering for tax with the authorities. In order to do so, they need a Personal Public Service Number which can be obtained from the Department of Social Protection and which is needed to create an account for the statutory online portal for taxpayers. Once the account is set up, the employee will be able to update their job information online - a necessary step to enable Revenue to send the relevant tax information for payroll processing to the employer. 

There is no legal obligation in Ireland to provide a pension scheme for employees. Employers who want to set up a company pension scheme for their staff must make sure to have it approved by the Revenue Office in order to unlock available tax benefits and reliefs linked to it. In the absence of a company pension scheme, employers should give their employees the option to contribute to a Personal Retirement Savings Account (PRSA).

Income in Ireland is taxed at rates of 20% and 40%. Amounts due are deducted at source by the employer. Social security contributions - known as Pay Related Social Insurance - are collected from both employee and employer. There is an additional social surcharge levied on employee income at progressive rates. 

Tax considerations

The Irish tax system is based on two single tax rates which are 20% (base rate) and 40% (additional rate) which applies to the part of income which exceeds certain thresholds. However, the respective income thresholds vary depending on the taxpayer’s family status (single/widowed, married/civil partnership).  

Taxable income determination is based on a system of tax credits and reliefs, including a personal tax credit as well as an employee tax credit. Employment expenses are deductible as are contributions to a pension scheme which has been approved by the Revenue Commissioners Office.

Here is an overview of the current tax bands and rates (valid for 2022). 

* Different tax bands apply for single parents. 

** Married couple having only one income.

*** Married couples having two incomes. 

Taxpayers who are both Irish residents and domiciled in Ireland are liable for income tax on their worldwide income while non-resident tax payers only pay tax on income sourced in the country. Tax residency for a particular tax year is determined based on the 183-day rule. Irish law further distinguishes between “residency” and “domicile” which may have an impact on an individual’s tax liability. 

There also is a Local Property Tax (LTP) which employees can choose to have deducted from their income by their employer as part of the payroll process. The Revenue Commissioners Office provides employers with information about the amounts to be deducted. 

Tax withholding and reporting 

Employees pay income tax through the PAYE system. The responsibility to calculate and withhold income tax is on the employer. In 2019, Ireland implemented Real Time Reporting (RTR). This means that employers have to report employee pay, withheld income taxes and other deductions at the same time as they process their payroll. Mandatory information to be submitted includes the pay date as well as: amount of pay, income tax, Local Property Tax, USC and PRSI (see next section for detailed explanations on USC and PRSI).

Based on the submitted information, the local tax authority will issue a monthly payroll summary for the employer to review and accept before paying the amount due. The timeline for this process is as follows (please note that “month” refers to the month following the payroll process):

• 5th day of the month: Revenue Commissioners Office issues a payroll summary

• 14th of the month: deadline for reviewing the summary; summary turns into official payroll declaration

• 23rd of the month: deadline for payments of the amount indicated in the payroll return for employers using the Revenue Online Service

Please note that the due date for payroll tax payments for employers not using the Revenue Online Service is shifted forward to the 14th of the month following the payroll process. Depending on the amount of taxes they have to pay, employers may be eligible to change to quarterly payments.

Employees have to file a personal tax return by 31 October of the following tax year - mid-November if filed electronically. The tax year in Ireland is the same as the calendar year. 

Social security contributions

In addition to the employee’s personal income tax, employers also need to deduct the employee’s share of the Pay Related Social Insurance (PRSI) as well as the Universal Social Charge (USC). This is part of the payroll process under the PAYE system. Therefore, no separate filing is needed. PRSI and USC contributions are paid together with the withheld amount of income tax by the 14th (or 23rd) of the following month.  

There are several different PRSI classes with different contribution rates. However, most employees are required to make a 4% contribution which is matched by a 11.05% contribution by the employer (PRSI Class A, rates valid for 2022). 

Employee’s with a weekly income under EUR 352 are exempt from PRSI. A reduction of PRSI payments is available for employees earning between EUR 352 and EUR 424. From January 2022, a reduced employer rate of 8.8% applies to weekly income below EUR 410. 

The USC rate applicable depends on the employee’s annual income and varies between 0.5% (on income up to EUR 12,012) and 8% (on income over EUR 70,044), with a 2% rate and a 4.5% rate in between.

Employer and employee contributions to an authorised pension scheme (if the employer decides to provide one, that is) also have to be deducted during the payroll process. Payments to the respective pension provider have to be made no later than the 21st of the month following the payroll run in which the deductions have been made. Employees have a right to be informed about the contributions on a monthly basis.

Employees in Ireland are entitled to various benefits. These include:

• Annual leave and public holidays: 4 weeks, plus 9 public holidays

• Maternity leave: up to 42 weeks (26 weeks are paid by either social security or employer)

• Paternity leave: 2 weeks

• Parental leave: up to 26 weeks of unpaid parental leave, plus 5 weeks of paid parent’s leave (must be taken before the child turns two) - parent’s leave is due to increase to 7 weeks in July 2022

• Sick leave: under the new statutory sick pay scheme for 2022, employers are obligated to provide sick pay equal to 70% of the employee’s wages (capped at EUR 110 per day) for 3 days - increasing to 10 days until 2025

For more information on employee benefits and other employment requirements in Ireland (including severance pay and termination procedures), check out our Global Hiring Guide.

Ireland’s minimum wage has risen in January 2022 and is now fixed at EUR 10.50 per hour. However, different minimum wage rates apply in certain industry sectors and for employees under 20. Current rates are:

• EUR 9.45 for employees aged 19

• EUR 8.40 for employees aged 18

• EUR 7.35 for employees under 18

There are no legal provisions for overtime pay which should hence be regulated by the individual employment contract. Bonus payments are not required by law, but performance-based bonuses are frequently provided by employers.

In order to process payroll for each employee correctly, employers receive a notification from the Revenue Commissioners Office (known as Revenue Payroll Notification, short: PRN) for each employee which informs them about applicable tax credits, USC rates and more. It is mandatory to always check for the most recent PRN available. 

Payroll in Ireland can be processed on a weekly or monthly basis. Payments to employees can be made under various forms, including cash, check, postal order and bank transfer. Regardless of the payment method used, employees should receive their pay no later than the end of the month.

In addition to calculating and deducting taxes and social contributions from employee pay, employers are legally obliged to provide each employee with a payslip at the end of the pay period. The payslip should detail the total amount paid as well as any deductions made and can be issued electronically or as hard copy. Payroll records must be kept for 6 years.