When a business starts to grow, the owner can find themselves in a position where they need an extra pair of hands, but often the thought of becoming an employer can be a bit daunting.
If you are in a position where you’re taking on employees for the first time, there are a few things that you need to be aware of. Firstly you will need to register with Revenue as an employer. You can then look into the various payroll software options available on the market. While it is possible to run a manual payroll system, we would strongly advise against this option, as it comes with a high likelihood of errors.
The next step is to register your employee; in most cases you can ask your employee to register themselves via their Revenue myAccount, or you can register them directly on the payroll software. If this is the employee’s first job in Ireland, they will need to register for and access their Revenue myAccount to register their employment with you and claim their tax credits. You will not be able to do this for them. While you can still process the payroll for them, they will be subject to emergency tax until they do register.
Revenue operates a live PAYE system, so when you register the employee on your payroll software, you should be able to access their tax credits immediately via the Revenue Payroll Notification (RPN). If the employee’s record is showing that they have no tax credits, or an unusual amount of credits, it would be advisable to check with them if there is a reason for this. If they have recently finished another job for example, their credits may still be allocated to that employment and they may need to take steps to resolve this. Each time you run the payroll, whether weekly or monthly, you will need to submit a Payroll Submission Request (PSR) to Revenue. This contains details of the employee’s pay and tax, and lets Revenue know the total tax that they need to collect from you.
Each month Revenue will issue a statement of account to you which will detail the payroll taxes due. This should be checked against the payroll software to ensure that it matches. Assuming that the details are correct, the payment will be collected on a monthly or quarterly basis.
A common pitfall for employers is to agree to pay net wages to their employees i.e. a set amount after tax. While this is very good for employees it can often work out quite costly for employers. Even though the wages are paid net to the employees, the employer has to gross up the amount that has been paid and pay that tax over to Revenue. What often happens is that unbeknown to the employer, the employee may not have the standard tax credits or full standard rate tax band e.g. they may have chosen to transfer this to their spouse. As a result when the net pay is grossed up, the tax payable will be considerably higher than the employer may have expected. It’s always wise to pay gross wages, but if you do decide to go down the net wages route, then you should ensure that your employees have the correct tax credits and that these do not change during the year.
While payroll tends to run quite smoothly when set-up, it’s important to have a good understanding of the workings behind the figures, so that any issues can be spotted and dealt with in a timely manner.