WHAT TO KNOW WHEN EMPLOYING YOUR FIRST EMPLOYEE
If you are a Sole Trader or a Limited Company and thinking to hire your first employee, you should be aware of the steps and your responsibilities as an employer.
Registering for Employers Tax
First, your business should be registered for Employer’s PAYE tax. You can do this using Revenue’s online registration facility or contact us and we will do this for you.
You may need to apply for Relevant Contracts Tax (RCT) if you hire sub-contractors in the construction, forestry or meat-processing industry. If you’re unsure about what taxes you need to pay as an employer, get in touch with us.
Once you are registered for the appropriate employer taxes and have hired employees, you’ll need to operate a payroll system. The easiest way of course is to outsource your payroll to professionals who will make sure your payroll is calculated and submitted properly and on time.
Revenue Payroll Notification (RPN)
Before you run your payroll you must retrieve an up to date RPN for each employee. The RPN will provide you with credits, cut-off points and other necessary information which will help to deduct correct taxes from the employee.
As an employer you will have to deduct the following taxes from your employees’ gross pay:
- Income Tax (IT)
- Pay Related Social Insurance (PRSI)
- Universal Social Charge (USC).
- Local Property Tax (LPT) deduction at source (if applicable)
From 1 January 2019, employers must report payroll details each time an employee is paid. You must report these details on or before the pay date.
Calculating Income Tax (IT)
Income Tax is charged as a percentage of your employees’ income. The percentage that you pay depends on the amount of employees’ income. The first part of income, up to a certain amount, is taxed at 20%. This is known as the standard rate of tax and the amount that it applies to is known as the standard rate tax band. The remainder of income is taxed at the higher rate of tax, 40%.
Depending on payroll frequency (weekly/ fortnightly/ monthly) Income Tax is calculated by:
- applying the standard rate of 20% to the income in employees’ weekly/ fortnightly/ monthly rate band
- applying the higher rate of 40% to any income above your employees’ weekly/ fortnightly/ monthly rate band
- adding the two amounts above together
- deducting the amount of employees’ weekly/ fortnightly/ monthly tax credits from this total.
Calculating Pay Related Social Insurance (PRSI)
PRSI contribution is a payment that go to the Social Insurance Fund (SIF) which helps pay for Social Welfare benefits and pensions. Each employee has a PRSI contribution class. This class and employees’ earnings will determine the rate that you will use to calculate their PRSI.
PRSI contribution is made up of the:
- employer’s share, that is, the amount of PRSI you pay on your employee’s pay
- employee’s share, that is, the amount of PRSI an employee pays on their own pay
There are 11 different classes of PRSI, but most workers in Ireland would fell under the class A. These are people in industrial, commercial and service-type employment who are employed under a contract of service with reckonable pay of €38 or more per week from all employments.
Calculating Universal Social Charge (USC)
USC is a tax that is payable on your employees’ income, including notional pay. Notional pay, or benefit in kind, is the value of any taxable benefits you give to your employees.
Revenue Payroll Notification (RPN) will tell you what USC rates and cut-off points to apply.
Deduction of Local Property Tax (LPT)
LPT is a self-assessed tax charged on the market value of residential properties in Ireland. Sometimes liable persons may pay their LPT liabilities by deducting at source from their wages. It will be noted on employees’ Revenue Payroll Notification (RPN) if and how much LPT you should deduct.
Contact us to get more information and assistance on registering as an employee and outsourcing your business payroll.