Employees will see the full effect of PRSI and PAYE on their company perks when they get their payslips this month, writes Laura Slattery
Employees who receive a range of non-cash benefits like company cars, health insurance and club subscriptions are facing a dip in their next pay cheque thanks to the application of PAYE, PRSI and the health levy to benefits for the first time.
Most job perks have decreased in value since the new regime, first announced over a year ago, finally came into effect yesterday, on January 1st. Some benefits, such as shopping or holiday vouchers over the value of €100, may be phased out, while the company providing luncheon vouchers has already closed down its operations in Ireland.
Many employees will not be aware of the new taxes until they see them on their payslips this month. Up to now, it has been up to the employee to declare benefits-in-kind to the Revenue, which would adjust their personal tax credits accordingly.
But from yesterday, employers will be required to calculate the value of benefits and add them as "notional pay" to the cash element of an employee's weekly, fortnightly or monthly pay.
Mr Seán Quill, senior consultant at Mercer Human Resource Consulting, believes there will be a few hiccups during the changeover rather than all-out chaos. The value of the benefits will be documented on the pay cheques, as will the PAYE and PRSI due on the benefits. The tax deducted from the cash pay should be noted separately. PRSI at 4 per cent is only applied to income beneath the PRSI ceiling of €42,160.
Ms Kerri O'Connell, taxation manager at Hamill Spence O'Connell, says many employers will find the changes onerous. "Practical questions to be considered include whether the payslip will list out the various different benefits or whether they will be combined under the heading 'other benefits'," Ms O'Connell writes in the new edition of Choices, a magazine published by recruitment company Brightwater Selection.
Tax experts warn there may be instances when the tax and PRSI due on notional pay is greater than the main cash pay for the period - or eats into the bulk of it - constraining employees' cashflow. For example, an employee could receive cash pay of €300 plus a holiday voucher worth €1,200 in this month's pay cheque. The employee's liability is based on €1,500, the total value of the cash pay and the benefit.
The employee PRSI due is €82.38 and the PAYE due is €466.92, giving a total tax liability of €549.30. But once the PRSI has been paid, there is only €217.62 left to meet the PAYE due, leaving a €249.30 shortfall.
Nevertheless, the entire employee liability of €549.30, together with the employer's PRSI of €161.25 (10.75 per cent), must be paid to the Revenue by the employer at the next remittance date. The employer must arrange with the employee to recoup from subsequent pay any part of the employee tax not already deducted. Employees may not be able to take the hit on their cash pay over just a few months and should ask to spread the liability over the year.
In the case of private use of company cars, preferential loans or use of employer-owned accommodation, the Revenue allows the taxable value to be apportioned over the relevant pay periods, so the employer will not have to make up any shortfall.
On benefits such as health insurance, club subscriptions and non-exempt creche costs, PAYE/PRSI is applied on the date of payment by the employer.
"Employers are realising that if they pay their premiums to VHI or BUPA over the course of the year, then the tax can be deducted from employees' salary over 12 months," says Ms Mairéad Walsh, senior consultant at Mercer.
Employees should keep a close eye on their payslips during 2004. Firstly, they must check that their personal tax credits have been adjusted up to their normal rate so they are not double-taxed on previously declared benefits. Secondly, 2004 is going to be a "trial by error" year, says Ms O'Connell, during which employers may find themselves duplicating payments or not deducting enough tax.
