Payroll - Net Pay agreements with employees and why you have to stop doing it
I’ve got a rant coming up for people who are agreeing net pay with their staff. Eg. instead of agreeing a gross salary with their employee, they tell them “I’ll give you x amount into your hand”. If you are reading this and thinking “What? No-one would do something that reckless.” Good. Skip this next section. If you’re thinking, my spouse, parent, offspring, loved one, friend, client does this all the time even though I’ve told them repeatedly that’s it a bad idea, maybe you can show them this and hopefully it will sink in.
Agreeing Net Pay with employees - you absolutely have to stop doing this:
It’s costing you a fortune. What I mean by net pay agreements is where you tell an employee you’ll pay them a certain amount “into their hand” without having any idea what their tax credits or cut-off point are.
This is a disaster for you as an employer. And it’s even worse under PAYE Modernisation. Your employees will have access to their own details on MyAccount on ROS. It is going to be easier than ever for them to transfer some of their tax credits or cut-off point over to their spouse. This will significantly increase the amount of tax owed on their salary. Guess who pays for that? You! And if they are a new employee, let’s say they’ve just arrived in Ireland, or this is their first ever job and they don’t yet have a PPS number, emergency tax at the high rate kicks in almost immediately. Guess who pays for that? You! It can take up to 8 weeks for them to get their PPS number and get their tax credits sorted. And they have no incentive to fix it because you’re paying them into their hand. Once their tax credits get sorted out, who gets the tax refund? Them, not you! Oh and let’s add insult to injury. What if an employee hasn’t paid their property tax so it is being deducted from their gross pay. Guess who pays for that? You!
How to clean it up: Set up a meeting with the person who does your payroll in the next week. Go through the list of employees and find out what gross pay they are on, based on the net pay you’ve been paying them. Be prepared that you might get a shock. Review their tax credits and cut-off point with your payroll person and make a note of anyone that is on unusually low tax credits or cut-off point. When you’re armed with the full information sit down with each of your employees and agree a gross pay with them. Once you’ve done this, it doesn’t matter what happens with their tax credits, or their property tax, it’s none of your business anymore. Have an hourly rate/daily rate/weekly rate gross pay figure worked out for all new hires. Even if you take someone on for just a day. If they are not self-employed, they are an employee.
What about Casual Labour
There’s no such thing according to Revenue. Even if you take someone on for just a day. If they are not self-employed, they are an employee. You agree a daily GROSS rate with them, you take their PPS number. You validate their PPS number. You register them as an employee on ROS before you pay them. You pay them and include their cessation date and upload those details to ROS.
If you are outsourcing the payroll function you let your payroll person know this person’s name, pps number and how much you’re going to pay them BEFORE you give them any money. You’ll have to let the payroll person the employee’s cessation date also. If they only worked 1 day then their cessation date is the same day.