Valuable Tax Efficient Employee Benefits

Cover Image for Valuable Tax Efficient Employee Benefits

| Naomi Butler

With cost-of-living increases, employees are looking for pay increases which employers may not be able to meet given the increases seen across all areas of business operations such as light, heat, and materials to name but a few and also the increase to minimum wages. Depending on the employee's tax bracket for every €100 increase to their gross pay they could be giving the Revenue €52 so only going home with €48. So how can an employer give their staff an increase without giving them an increase?**

There are a number of benefits that an employer can give to their staff some are taxable, some not, some well known and some not so well known. It should be noted that these schemes are not just for office workers, If your clients operate in retail, construction or hospitality then they can also offer these benefits to their staff. Some may be easier to implement than others – it comes down to the employer and what they think will be of, well, benefit to their staff.

Flat Rate Expenses – A lot of employees don’t know about this one and it will not cost the employer anything. Revenue has published a list of flat-rate expenses that employees of certain sectors (the main exclusion would be office staff) can claim. It covers 53 types of employment and 134 categories of expense. It is effectively an extra non-refundable tax credit. It is there to help cover some of the cost of equipment that employees need such as tools, uniforms and stationery. If the employees have not claimed this credit in the past they can make a claim for the prior 4 years now (so 2018 to 2021). A full list of the flat rate expenses can be found here - Flat rate expense allowances (revenue.ie)

Remote Working Expenses – if your clients have staff that work from home either full-time or have hybrid working arrangements the €3.20 per workday payment you can give tax-free is very beneficial. For example, if the employee works from home full-time then (taking into account annual leave, 20 days, and bank holidays, 9) they are working from home for approximately 231 days. This payment of €3.20 equates to a tax-free payment of €739.20 per year. The employer can claim it as a deduction and the employee can use this to go against their light and heat bills. To put that into context. For an employee in the higher tax bracket of 52%, they would need to receive a salary increase of €1,540 to receive a net payment of €739.20. For the employee in the lower tax bracket, the gross salary increase would have to be €1,087.06. When you factor in that no employer PRSI would be due on these payments, this is a valuable payment to both parties.

Bus / Rail passes – The cost of petrol and diesel is increasing so employees are reluctant to use their cars to commute to work, but can’t afford the additional cost of Bus / Rail passes. An adult annual Rail, Bus and Luas card costs €1,550; with some monthly travel passes costing €506 per month – that is €6,072 per year! No wonder employees want to work from home. This would mean that an employee in the top tax bracket would have to earn a gross salary of between €3,229 and €12,650 to cover these costs. If the employer provides the monthly or annual travel pass to their employees then no BIK arises in the hands of the employees and they have no employer PRSI. Plus the employer can claim the cost of the passes as a business expense. Alternatively, you could enter into a Salary Sacrifice arrangement whereby you as the employer provide the travel pass but then recoup some or all of the cost of the pass from the gross salary of the employee (before applying PAYE, USC and EE PRSI). This means the employee has a deduction of €1,550 off the top (gross) to cover the cost of the travel pass rather than a maximum of €3,229 (net pay plus deduction of PAYE, PRSI & USC), assuming the highest tax brackets.

Cycle to Work Scheme – For those employees who live within cycling distance of their workplace, this is a great one. There are certain criteria that must be met and it can only be availed once every 4years but the cost covered is €1,250 for bicycles including safety equipment. Similar to travel passes, the cost must be incurred by the employer directly. The employer can’t reimburse the employee. Also, like the travel pass they can operate this as a salary sacrifice. Just to note, the employer can’t claim the VAT back as the equipment would not be used for the purposes of their business's taxable supplies.

Small Benefit Exemption – Once a year an employer can issue an employee with a voucher or non-cash benefit valued at no more than €500.The most popular version of these are those vouchers that can be used in multiple businesses.If the voucher / non-cash benefit is for more than €500 then it becomes part of the taxable pay for the employee.

Last, but by no means least, and a really good one to consider especially if an employer can’t afford to cover private health insurance costs is instead to cover the employee's “day-to-day” health expenses. These are the very same health expenses that individuals can include on their personal tax returns at the year-end. But now; instead of getting 20% of the cost back, assuming they have paid tax, now the employer can reimburse them in full. The employer can then claim these costs as a wages / salary deduction against their turnover for the year. It should be noted that in order for the reimbursement to qualify, the costs must meet the same criteria as if being claimed personally. That is, fully allowable, not related to routine eye or dental care, and advised, prescribed or referred by a listed medical practitioner. Also to note is that the costs that can be reimbursed are for the employee only and not their family – this will be a BIK. If the employer reimburses the employee for the costs, the employee cannot then claim these same costs on their own tax returns. Finally, access to this health care is made available to all staff generally. Full details on this benefit can be found in Tax & Duty Manual Part 05-01-01n (Part 05-01-01n - Health and Well-being related Benefits (revenue.ie))

**The contents of this article are meant as a guide only and full research of all applicable legislation should be concluded before implanting any changes to employees' contracts, pay and conditions.

Image of Naomi Butler

About the Author

Naomi is a member of our technical support team, providing advice on all tax heads in response to queries submitted through our Knowledge Hub Platform. In addition, as a speaker for OmniPro CPD events, she creates content and presents on a variety of taxation topics. A Chartered Tax Advisor, Naomi trained and worked in practice since 2004. She progressed from trainee up to Head of Tax Compliance and Personal Tax Manager. Naomi has a range of experience overall tax heads with a strong understanding of personal taxes and payroll. Naomi also lectures in taxation for both CPA and Accounting Technicians Ireland through Griffith College.

YOU MAY ALSO LIKE

Cover Image for R&D Tax Claims - What You Need to Know About Pre-Notification

R&D Tax Claims - What You Need to Know About Pre-Notification

 

The Finance Act 2023 has ushered in a new era for companies seeking to benefit from the Re...

Cover Image for Capital Allowance Claims: Practical Challenges and Successful Submissions

Capital Allowance Claims: Practical Challenges and Successful Submissions

 

Capital allowance claims serve as a significant relief for businesses, enabling them to de...

Cover Image for Payroll Update for Crossborder and Remote Workers

Payroll Update for Crossborder and Remote Workers

 

Remote working has significantly altered the administration of payroll taxes for cross-bor...