A summary of the key changes for Employers & Employees due to Budget 2011:
We have outlined below some of the key changes to payroll that both Employees and Employers will need to consider from the 1stJanuary 2011.
Budget 2011 & the 4 Year National Recovery Plan
Based on the recent 4-year national recovery plan published by Government, it is intended to base the Income Tax system at approximately 2006 levels by a reduction of 16.5% in the value of the tax credits and tax bands by 2014. The proposed reduction is to be staggered as follows: 2011 (10%), 2012 (2.5%), 2013 (2%) & 2014 (2%).
It is hoped that the majority of the tax increases and the respective reduction in employees take home pay and employee’s costs will take place in 2011. This front-loading of tax increases in 2011 shall hopefully lead to less severe reductions in employees take home pay from 2012 onwards.
Over the course of this Plan it is intended to fundamentally reform the Income Tax system. This will involve bringing more of the workforce into the tax system. In 2010 approximately 45% of the workforce were exempt from tax. We reached a point in 2010 whereby just 8% of tax payers (earning €75,000 or more) were paying 60% of all Income Tax, while almost 80% (earning €50,000 or less) contributed just 17% of all Income Tax.
Examples of how Budget 2011 will impact on your take home pay:
We have included below examples of the impact that Budget 2011 will have on an employees net take home pay versus 2010.
As can be seen from the examples below the average reduction in net pay in 2011 will be approximately 1.5% to 3% versus 2010 depending on that individual’s personal circumstances or the equivalent of €33 to €140 per month in the case of the following scenarios:
– Single €17,542.20 gross p/a: 2010–Net €17,191.20 2011-Net €16,787.16 (2.35% reduction)
– Single €35,000.00 gross p/a: 2010–Net €28,424.08 2011-Net €27,933.20 (1.73% reduction)
– Single €100,000 gross p/a: 2010-Net €60,752.24 2011-Net €59,133.20 (2.66% reduction)
– Married (1 income) €70,000 p/a: 2010-Net €49,588.00 2011-Net €48,273.00 (2.65% reduction)
– Married (2 incomes) €80,000p/a: 2010-Net €62,337.00 2011-Net €60,666.00 (2.68% reduction)
Please click here to view more detailed calculations for the above.
If you would like us to provide you with a guide as to the change in your own personal take home pay in 2011 please contact us on 021-4641400 or email us on email@example.com and we will be happy to assist you.
Alternatively, we would suggest browsing the links below should you wish to estimate your new net pay and see the comparison between 2010 and 2011.
Key changes to consider from the 1st January 2011:
As you may be aware, there have been significant changes to the PAYE/PRSI system as part of Budget 2011. This may affect your business and your employees in a number of ways. Below are a few basic points of note to be aware of from the 1st January 2011:
- Employees who receive their net pay by standing order/direct debit, will need to have the standing order/direct debit reduced accordingly.
- Review monthly P30 liabilities, as they may increase due to higher PAYE/PRSI contributions by employees as a result of the changes in Budget 2011.
- Payroll Software – ensure that up-to-date versions of your payroll software are installed correctly prior to running the first week’s payroll for 2011. Failing to do so could lead to incorrect payroll information, which in turn could lead to increased liabilities at the payroll year 2011.
- It is advisable that for all employees, you have an agreed gross (before tax) hourly/weekly or monthly wage in place. Please note that the total wages cost for the employer can be calculated 2 ways, (Gross wage + employers PRSI) or (Net wage + PAYE + PRSI + Income Levy/Universal Social Charge (USC) + all other deductions).
- Ensure before processing the first pay run in 2011 that you have updated the reduced 2011 tax credits and standard cut off point for your employees. If the 2010 tax credits are used, employees will be overpaid. This may, in turn, lead to incorrect returns to revenue and could then result in interest and/or penalties.
Understanding Budget 2011
Below are a few of the changes in the Budget and how they will impact on your payroll:
While there have been no changes to the standard (20%) or the higher rates (41%) of Income Tax in 2011, Personal Tax Credits have been reduced and Standard Rate Cut-Off Point (SCROP) has been lowered by 10%.
To view the amendments to the Personal Tax Credits and the SCROP for 2011 please click here.
What This Means
Employees will pay more PAYE on their gross pay – This will result in increased deductions from employee’s gross pay therefore less net pay for employees and increased P30 liabilities due to Revenue by employers.
In 2010 PRSI contributions were made up of 2 different parts: PRSI Contribution and a Health Levy.
The Health Levy (this was included in the total PRSI deduction) has been abolished. The Health Levy will now be combined with the Income Levy and it will now be called a Universal Social Charge (USC).
Also the upper ceiling for PRSI (annual income of € 75,000 p.a) has now been abolished.
What This Means
Employee’s PRSI contributions will decrease as a result of the Health Levy now being included in the Universal Social Charge instead of being part of the PRSI contribution. This maybe rebalanced by the inclusion of the Income Levy in the Universal Social Charge. As a result of the PRSI ceiling being abolished Employees will pay PRSI on their total gross pay rather than previously up to an income limit of € 75,000 p.a.
For details on the new 2011 rates and bands for PRSI – Please Click Here
This was a completely separate deduction, which was introduced in April 2009 as an emergency source of revenue for government.
This deduction has been abolished and will now be incorporated into the new Universal Social Charge (USC) for 2011.
- Universal Social Charge (USC)
This is a separate deduction, which effectively replaces the Health Levy portion of the 2010 PRSI contribution and also incorporates the 2010 Income Levy deduction.
Please click here for USC rates.
The National Minimum wage has been reduced from € 8.65 per hour in 2010 to € 7.65 in 2011. This reduced rate will not apply to existing employees as a reduction in their wages would be a change to their terms and conditions of employment.
What This Means
New employees hired must be paid € 7.65 or above per hour provided they meet the criteria to qualify for the minimum wage.
For more details on the criteria for minimum wage: Please click here
- Pension Contributions & PRSI
For 2011, relief for employee PRSI for pension contributions will be abolished. The annual earnings cap for employee/personal pension contributions is to be reduced from €150,000 to €115,000. Employers will still obtain relief from Employer PRSI in respect of 50% of any employee pension contributions.
What This Means
Employees with a pension contribution that is being included in payroll will not have as much relief in 2011. This will result in slightly increased deductions from employee’s gross pay.
It is proposed that over the following 3 years (2012 to 2014) of the National Recovery Plan the rate of Income Tax relief on pension contributions will be reduced from 41% to 34% in 2012, to 27% in 2013 and 20% in 2014.
Maternity and Adoptive Benefit has been reduced by € 8 meaning the maximum payment of €270 is to be reduced to €262.
What This Means
If employers pay employees while on Maternity Leave, it will cost the employer more to bring employees up to their regular pay.
Tenants who pay rent to landlords for private rented accommodation are entitled to claim tax relief at the 20% rate in respect of such rent. The maximum amount of rent upon which tax relief is available has been reduced by 20%, as follows:
|Single & under 55 years of age
|Married/Widowed & under 55 years of age
|Single & over 55 years of age
|Married/Widowed & over 55 years of age
This tax relief is being withdrawn for current tenants on a phased basis over the next 7 years.
Claimants who were not renting at 7 December 2010 and who subsequently enter into a rental agreement after this date will not be able to claim this relief.
Current Child Benefit rates are being reduced by €10 per month to €140 for the first and second child and by €20 per month to €167 for the third child and by €10 per month to €177 for the fourth child and subsequent children.
- Local Authority Service Charge Tax Credit
People who paid a Local Authority Service charge can claim in full (up to a Maximum of €400) the tax credit in 2011; however this will be abolished in 2012.
Other Useful Links
National Recovery Plan – Please click here
Budget 2011 – Please click here
Quintas Budget 2011 Summary – Please click here
Family Budget Planner 2011 – Please click here
If you have any queries in relation to any of the points outlined above please contact the payroll department on 021-4641400 or e-mail firstname.lastname@example.org
Mark is a Director of Quintas and heads up the Business Centre