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Employment Tax and Law Newsletter
Employment Tax Updates
1. Pension Auto-Enrolment
As part of its agenda to tackle future pension shortfalls for much of the population, the government has announced plans to introduce a new retirement savings scheme, Auto-Enrolment (“AE”), for employees who are not currently participating in a private or workplace pension. Currently, one in three workers do not contribute to a private pension.
Under AE, workers who do not have an occupational pension will be automatically enrolled if they are aged between 23 and 60 and earn a minimum of €20,000 per year.
The purpose of AE is to encourage workers to save for retirement much earlier to reduce overreliance on the State Pension. The hope is that AE will contribute to workers having access to additional funding to supplement the State Pension on retirement.
How will Auto-Enrolment operate?
A new public body, the National Automatic Enrolment Retirement Savings Authority (“NAERSA”), will be set up to administer AE which will be supervised by the Pensions Authority.
Under AE, the individual, employer, and Government will all contribute to the individual’s pension fund. For every €3 an employee contributes, the employer will contribute €3, and the State will contribute €1. Contributions will be based on a percentage of the employee’s annual salary, subject to a €80,000 annual salary cap for the employer and government contributions. Please refer to the below table for the contribution rates for each group.
|
Year of Scheme |
Employer Contribution Rate |
Employee Contribution Rate |
Government Contribution Rate |
|---|---|---|---|
|
1-3 |
1.5% |
1.5% |
0.5% |
|
4-6 |
3% |
3% |
1% |
|
7-9 |
4.5% |
4.5% |
1.5% |
|
10+ |
6% |
6% |
2% |
As you will note, the contribution rates are phased in gradually over the first decade of the AE period. For example, for years 1-3, employees and employers will contribute 1.5% each, with the government contributing 0.5%, and this will increase gradually until year 10 at which point, employees and employers will contribute 6% each, with the government contributing 2%.
The tax treatment of employee contributions under AE will differ to the treatment made to a private or occupational pension scheme. The employee will contribute to AE from their net income after tax (Income Tax, Universal Social Charge (“USC”) and Employee Pay-Related Social Insurance (“PRSI”)), therefore, there will be no Income Tax relief on contributions made by the individual.
Any contribution made by the employer will not be treated as a taxable benefit provided to the employee for employment tax purposes.
Who will Auto-Enrolment apply to?
Employees aged between 23 and 60 who are not currently contributing to a pension plan and earn a minimum of €20,000 per annum will be automatically enrolled by NAERSA. A key feature of AE is that the employee must ‘opt-out’ rather than ‘opt-in’ as is the case with other pension plans, which will change the behaviour and mindset of employees in relation to planning for retirement. The Government hopes any worker automatically enrolled will stay in the scheme.
Employees who are automatically enrolled may choose to opt out after the first 6 months and any employee contributions will be refunded (employer and Government contributions will remain in the pot). Workers will then be automatically re-enrolled in the scheme after two years if they meet the eligibility criteria but can choose to opt out again after a further 6 months.
Those who are not automatically enrolled by NAERSA can still participate and choose to opt in provided they are working, are at least 18 years old, but under the pension age, and are not already a contributing to a pension scheme. The NAERSA will review the application and determine if the individual is eligible.
When will Auto-Enrolment be introduced?
AE is expected to be introduced on 1 January 2025.
Impact on Employees
AE could prove very valuable to generations of workers not currently signed up to a private or workplace pension plan and could reduce reliance on the State Pension as the only source of income in retirement.
To provide some figures, an employee contributing to AE at the age of 23 and earning €30,000 per year could expect to have a pension pot of €590,000 at the age of 66. This is based on wage inflation of 2% per year and an annual return of 4.5%.
Next Steps for Employers
Employers will need to be ready for the introduction of AE on 1 January 2025 on a number of fronts. The relevant body overseeing AE will notify employers of employees that need to be enrolled under AE and voluntary opt-ins.
- Payroll requirements – From a payroll perspective, employers will need to ensure payroll software can facilitate contributions under AE and that payroll instructions are set up to correctly calculate and remit employee and employer contributions to the NAERSA. Employers will be required to file a separate return through payroll directly to the NAERSA and information on how this process will work is to be made available closer to the go-live date. The Government has advised that employers who fail to meet their AE obligations will be subject to penalties and risk prosecution.
- Financial cost - AE will be an additional cost to employers who will need to ensure they have sufficient cash flow to meet the employer contribution requirements. Employers should start identifying the employees who could be affected by AE and budgeting for these additional costs. To help employers, AE will be phased in gradually with contributions starting at a modest level and increasing incrementally until they level out from year 10 onwards.
- Employee communication piece – Employers will need to ensure employees fully understand how AE will work in practice, its benefits and implications, the choice to opt-out where automatically enrolled, or to opt-in if not. A key piece of information employers will need to communicate is that employee contributions will be deducted from after-tax income impacting the amount of net pay the employee will receive.
As part of the communication to employees, employers will need to highlight that the State Pension and any income derived from the AE scheme will be taxable when drawn down at retirement, the employee will need to seek further advice on the expected level of tax they are likely to pay.
Benefit for Employers
- For employers who do not currently offer a pension scheme, AE allows them to provide financial security to their employees without the cost and administration of having to set up or administer their own occupational pension scheme.
- The pension contributions paid by the employer will be deductible for corporate tax purposes.
Impact on Employers who already operate an occupational pension scheme
The introduction of AE may create added complexity and administration for employers who already operate their own occupational scheme as any employee who is not already contributing to the company plan as of 1 January 2025 will be automatically enrolled in AE. This could result in employers having to operate the two schemes in tandem if not all employees have signed up to the company occupational plan in advance of the 1 January 2025 go-live date.
For employers who wish to avoid this additional admin, communicating the benefits of joining the company occupational plan over AE will be crucial.
For Small/Medium employers who do not operate an occupational pension scheme but currently have a contract in place with a Revenue approved PRSA provider or offers access to their employees to set up a standard PRSA, it would be worthwhile for these employers to discuss with their employees currently not availing of the PRSA offering, the benefits of setting up a standard PRSA against the offerings available under AE.
Impact on employers with a mobile workforce
It remains to be seen how AE will interact with employees temporarily working in Ireland who contribute to a foreign pension scheme.
Limitations of Auto-Enrolment
Encouraging and changing behaviours of individuals to plan and provide for retirement is beneficial to the individual, their family and society as whole, however, there are some missed opportunities and limitations to AE in its current proposed form which are worth mentioning:
- Many employees may already contribute to a private or occupational pension but still do not contribute an adequate level to their pension to prepare for retirement. Such individuals cannot contribute to AE to supplement this shortfall.
- At present there is no facility under AE for an employee to make an Additional Voluntary Contribution (“AVC”) to the scheme. The contribution percentages are fixed.
- AE is not available to self-employed individuals or individuals not working for certain periods of time.
2. PRSI Rate Increases
As announced in last year’s Budget, all PRSI rates will increase by 0.1% from 1 October 2024.
This is part of the Government’s PRSI Roadmap to replenish the Social Insurance Fund to help pay for measures and changes introduced.
For the majority of employees who are PRSI Class A1 contributors, the Employee and Employer PRSI rates are to increase as outlined in the table below.
|
Class A1 Employee PRSI (Current) |
Class A1 Employer PRSI (Current) |
Class A1 Employee PRSI (from 1 Oct 2024) |
Class A1 Employer PRSI (from 1 Oct 2024) |
|---|---|---|---|
|
4% |
11.05% |
4.1% |
11.15% |
Similarly, self-employed persons will see an increase to the Class S rate as outlined in the table below.
|
Class S Self-employed PRSI (Current) |
Class S Self-employed PRSI (from 1 Oct 2024) |
|---|---|
|
4% |
4.1% |
Impact on Employers
Failure to apply the revised PRSI rates from 1 October 2024 could lead to underpayments of Employee and Employer PRSI.
The obligation to deduct and pay the appropriate payroll taxes including PRSI lies with the employer and therefore employers need to be aware of these changes as it is the employer who will be held liable for any underpayment of PRSI (along with any associated statutory interest and penalties) to the Irish Revenue.
In order to meet their statutory obligations, employers will need to ensure the revised rates are coded into their payroll software or to check and engage with their payroll providers in time for the October 2024 payroll run.
Prior communication to employees should be issued to manage queries from the workforce in relation to changes in net pay.
2025 and future years
Further to the 0.1% increase in all PRSI rates in October 2024, there will be consecutive incremental rises in the PRSI rates for all PRSI Classes over the next 5 years as follows:
|
Tax Year |
Increase in PRSI Rate |
|
|---|---|---|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
0.15% |
|
|
2027 |
0.15% |
|
|
2028 |
0.2% |
|
Employers will need to ensure that their payroll software or their payroll providers have measures in place to capture and implement the increases going forward. Employees will also need to be reminded of the PRSI increases and the impact on their net pay each year.
3. Increase in Upper Age Limit for State Pension and PRSI Treatment
As of 1 January 2024, the upper age limit for receiving the State Pension increased from the age of 66 to 70 for all employees and self-employed persons, with the exception of:
- Persons who have already been awarded the State Pension (which as of 1 January 2024 can be drawn down by persons aged between 66 and 70); and/or
- Persons who have already reached 66 years of age by 1 January 2024.
Employees and self-employed persons can therefore now choose at what time between the age of 66 and 70 they would like to receive the State Pension and employers must update their processes to take into account of this.
By deferring receipt of the State Pension, individuals will receive an actuarially adjusted higher payment once drawn down.
Impact on Employers
An employee who has already reached 66 years of age by 1 January 2024 and continues to work will remain under PRSI Class J. Under PRSI Class J the Employee PRSI rate is 0% and the Employer PRSI rate is 0.5%.
For any employee who reaches 66 years after 1 January 2024 or in subsequent years, employers will need to engage with the individual and request whether the individual will be drawing down the State Pension. If the individual decides to delay accessing the State Pension to a later age and continues to work, PRSI at the normal Class A must continue to be operated in the payroll by the employer.
This means that the current Employer PRSI rate of 11.05% which applies to Class A (and which is to increase annually for the next few years from 1 October 2024) will continue to apply until the earlier of:
- the employee turning 70 (if they were not already 66 years of age by 1 January 2024), or
- the individual drawing down their State Pension between the ages of 66 and 69
Increasing the upper age limit for the State Pension allows the individual employee to draw down on an actuarially adjusted higher payment from the State Pension, however, it delays the employee becoming a PRSI Class J contributor if they continue to work.
The Irish exchequer benefits from the increased PRSI contributions from the Employee PRSI (0% versus 4%) and Employer PRSI (0.5% versus 11.05%), and note the 1 October 2024 and subsequent years increases.
Impact on employees
Increasing the upper age limit for the State Pension is aligning with the reality that certain individuals do not retire at 66 years whether that is due to affordability or for personal reasons. Receiving an actuarially adjusted higher payment from the State Pension is beneficial for the individual and can assist the employee in providing for their retirement if they continue to work up to 70 years. For example, the employee can continue to contribute to an occupational pension or PRSA and avail of income tax relief up to a maximum of €46,000 (40% of €115,000) each tax year.
Immigration updates
Immigration continues to play a critical role in companies’ quests for global talent and the Government’s efforts to fill local skill gaps and combat irregular migration. This is weighed in balance with shifting opinions in the immigration landscape, particularly across Europe.
Ireland has introduced a number of changes recently to streamline and simplify certain regulatory hurdles experienced by non-EU individuals working and/or residing in Ireland.
In June, the Employment Permits Act 2024 was signed into law by the President of Ireland. This Act consolidates previous employment permit acts and has provisions for an indexation of qualifying salary thresholds, a seasonal employment permit and changes of employer. A commencement order is required before the Act will come into effect.
It is anticipated these changes will encourage non-EEA professionals to consider Ireland as location for work, addressing skills shortages and better assisting employers looking to hire key talent globally.
It is crucial that employers are aware of the immigration requirements for hiring new and continuing to employ a global workforce, as having incorrect work and residence permission can be extremely stressful for the individual while creating significant expense and disruption to the business operations.
We have provided a high level summary of some of the amendments:
1. Introduction of single permits
On 15 May 2024, Ireland announced the introduction of a new single permit that will allow holders to work and reside in Ireland without obtaining separate work and residence permits.
Currently non-EEA nationals who seek to work in Ireland must apply for a work permit from the Department of Enterprise, Trade and Employment (DETE) and then apply for a residence permit from the Department of Justice (DOJ). The total processing time for both is more than 5 months.
The single permit will streamline this process with the authority to issue, renew, amend or reject single permit applications to a single authority with an expected processing time of 90 days.
The single permit scheme is expected to be implemented over the course of the next three years.
This will be a welcome change reducing time and costs associated with obtaining separate permits for individuals and their employers.
2. Eligible spouses and partners of certain employment permit holders can now work without obtaining a work permit
From 15 May 2024, eligible spouses and partners of certain employment permit holders who have a Stamp 3 Irish Resident Permit (IRP) are being issued with Stamp 1G IRP, which will now enable the holder to work or study in Ireland without obtaining a work permit.
The Stamp 1G permission still does not allow the holder to establish or operate a business in Ireland. It must be renewed by the holder annually.
After five years of residing in Ireland on a Stamp 1G permission, individuals may be eligible to apply for Stamp 4 permission which authorises them to study, work or to set up a business in Ireland without holding a separate permit.
This is another welcome change ensuring that Ireland continues to be a key location for attracting global talent by becoming a suitable location the family, as whole, can consider moving to.
3. Changes to the registration process for resident permit applicants
From 8 July 2024, Irish residence permit holders based in the counties of Cork and Limerick will be required to complete their first-time registration at the Immigration Service Delivery’s (ISD) Burgh Quay Registration Office (ISD Dublin) and file any renewal applications online.
Individuals who reside in Ireland more than 90 days must obtain an IRP card. Previously, individuals based in Cork and Limerick had to complete this process at their local Garda (police) Station. Individuals based in Cork and Limerick (in addition to those based in Dublin, Kildare, Meath or Wicklow) will be required to book an appointment with the ISD in Dublin via a dedicated helpline to register within 90 days of arriving in Ireland.
Residence permit holders based in Cork and Limerick seeking to renew their registration will no longer need to visit their local Garda Station in person and can filed their renewal application through the ISD’s online portal.
Local GNIB office/Garda Stations will continue to handle first-time registrations and renewal applications for individual living outside these counties.
4. European Council extends the Temporary Protection Directive until March 2026
On 25 Junes 2024, the European Council further extended the Temporary Protection Directive (TPD) for the protection of individuals fleeing the Ukraine crisis until 4 March 2026. The TPD was effective until 25 March 2025.
The TPD provides to Ukrainian nationals and nationals outside the EU or EE who fled Ukraine various rights to residence and work authorisation, housing and medical assistance. This extension does not change the decision in March 2022 regarding the categories of individuals to whom the TPD applies.
The announcement is welcomed providing further certainty to individuals eligible to work in an EU country under the TPD and to their employers to avoid disruptions to business operations. The Irish authorities have yet to make any announcements on how this extension will operate in Ireland.
5. New Visa requirements for nationals of Botswana and South Africa
From 10 July 2024, nationals of Botswana and South Africa must obtain a visa prior to entering Ireland for business, work, study, family visits, tourism purposes or to transit through the country.
Transitional arrangements are in place until 9 August 2024 for individuals that have already made travel arrangements before 10 July. These individuals will be able to travel to Ireland without a visa provided they can provide proof that they booked flight tickets before 10 July 2024.
EY will continue to monitor these developments, however, should you have any questions, we encourage you to contact one our Immigrations specialists.
Contacts
If you require further information, please call your regular contact in EY or contact any of the following:
Michael Rooney
Partner
T: + 353 1 221 2857 | E: michael.rooney@ie.ey.com
Rachel Dillon
Partner
T: + 353 1 221 2554 | E: rachel.dillon@ie.ey.com
Marie Caulfield
Partner
T: + 353 1 221 1416 | E: marie.caulfield@ie.ey.com
Colin Spence
Director
T: + 353 1 221 1240 | E: colin.spence@ie.ey.com
Jennifer Sweeney
Director
T: + 353 1 479 4007 | E: jennifer.sweeney1@ie.ey.com
Caoimhe Neary
Director
T: + 353 1 478 6579 | E: caoimhe.neary@ie.ey.com
Elaine O’Gara
Director
T: + 353 087 490 2947 | E: elaine.o.gara@ie.ey.com
Jake Higgitt
Director
T: + 353 21 480 2877 | E: jake.higgitt@ie.ey.com
Waterford
Gillian Moore
Director
T: + 353 1 479 2216 | E: gillian.m.moore@ie.ey.com
Louise Cadogan
Director
T: + 353 5 184 0358 | E: louise.cadogan@ie.ey.com
Cork
Peter O’Connor
Director
T: + 353 2 148 02843 | E: peter.oconnor@ie.ey.com
EY Law
Deirdre Malone
Partner
T: +353 21 480 5729 | E: deirdre.malone@ie.ey.com