Budget 2019 - Employment Related Changes

It is, of course, Budget 2019 time and Mazars have kindly written an article for Legal-Island readers which sets out the employment-related changes, including the following measures from an employment tax perspective:

Minimum wage

• The hourly minimum wage will be increased to €9.80 following the recommendation of the Low Pay Commission.

Income tax

• An increase of €750 in the income tax standard rate band for all earners, from €34,550 to €35,300 for single individuals and from €43,550 to €44,300 for married one earner couples.

• An increase in the Home Carer Tax Credit from €1,200 to €1,500.

• An increase in the Earned Income Credit from €1,150 to €1,350.

USC

The revised USC rates and bands from 1 January 2019, will be as follows:

Incomes of €13,000 are exempt. Otherwise:

• €0 – €12,012 @ 0.5%
• €12,012 – €19,874 @ 2%
• €19,874 – €70,044 @ 4.5%
• €70,044+ @ 8%
• Self-employed income over €100,000: 3% surcharge

Employer's PRSI

From 1 January 2019, employer PRSI contribution rates under Class A and Class H will increase by 0.1% to fund increases in the National Training Fund levy. A further 0.1% increase will also take effect in 2020.

Also, with effect from 1 January 2019, the weekly income threshold for the higher rate of employer’s PRSI (which will be 10.95%) will increase from €376 to €386.

Extension of 0% BIK rate for electric vehicles

To incentivise the uptake of electric vehicles, a special rate of benefit-in-kind (BIK) of 0% applies where an employer provides an electric vehicle to employees in the period from 1 January 2018 to 31 December 2018.

The 0% BIK rate for electric vehicles is being extended for a period of 3 years, provided that an electric vehicle does not have an original market value exceeding €50,000.

This is a welcome announcement as current rates of BIK on company cars (non-electric cars) apply at rates between 6% and 30% of the original market value of the vehicle, depending on the business mileage travelled by the employee.

Social welfare changes

A new paid parental leave scheme will be introduced in November 2019 to provide two extra weeks’ leave to every parent of a child in their first year. The Minister for Finance intends to increase this to seven extra weeks over time.

Key Employee Engagement Programme (“KEEP”)

A tax-advantaged share option scheme known as the Key Employee Engagement Programme (“KEEP”) was introduced on 1 January 2018 with the objective of supporting unquoted SMEs in the recruitment and retention of “key” employees.

In summary, gains arising to a key employee on the exercise of qualifying share options under the KEEP incentive will be exempt from income tax, USC and employee PRSI contributions. Under the KEEP incentive, the employee will only pay Capital Gains Tax at the current rate of 33% on the ultimate sale of the company shares.

Previously, the total market value of all shares in respect of which qualifying share options could be granted to an employee or director could not exceed the lesser of:

• €100,000 in any one year of assessment,
• €250,000 in any 3 consecutive years of assessment, or
• 50% of the annual emoluments of the individual in the year of assessment in which the share option is granted.

The above limits will be amended as follows:

• The ceiling on the maximum annual market value of shares that may be awarded will be increased from 50% to 100% of an individual’s emoluments in a year of assessment;
• The three-year limit will be replaced with a lifetime limit; and
• The quantum of share options that can be granted under the scheme will increase from €250,000 to €300,000.

As it stands, these changes would appear to restrict the annual award of share options under KEEP to the lesser of €100,000 or the level of an employee’s earnings in any one year. In addition, a new lifetime limit of €300,000 on the value of share options awarded under the incentive has been introduced.

Apparently, no SME has implemented KEEP yet, which is due to the restrictive conditions that exist. It is disappointing that the changes announced in Budget 2019 will create more obstacles rather than making KEEP more attractive for SMEs.

Employer PAYE compliance implementation

The implementation of PAYE Modernisation (Real Time Reporting) will result in changes to the current operation of payroll processing from 1 January 2019. Under the new regime, employers will be obliged to notify Revenue of every payment they make to employees including the date of payment and the amount of tax deductible or repayable.

All data received by Revenue from employers, including corrections and the timing of submissions, will feed into Revenue’s risk analysis systems, which could lead to more Revenue PAYE audits of employers. The Department of Finance expects increased compliance levels from employers from 1 January 2019, which they estimate will yield an amount of €50 million in 2019.

This is a timely reminder to employers to ensure that they are taking the necessary steps to prepare for the new PAYE regime from 1 January 2019.

Mazars has also written a full report on the 2019 Budget.