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Irish SMEs could lose thousands by paying employees an annual bonus through payroll

Written by Robert McHugh, on 9th Dec 2019. Posted in General

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New research has shown that Irish businesses could be losing thousands every year by paying employees an annual bonus through payroll.

The research by One4all has found that small enterprises (businesses with 10-50 employees) are losing an average of €12,820 every year by not availing of the Benefit in Kind allowance (BIK) provided by the Government, which allows Irish businesses to reward staff with up to €500 in non-cash benefits completely free of Income Tax, USC or PRSI. This figure would be significantly higher for SMEs with between 50-250 employees.

Nationally representative research by Coyne Research, found that Irish SMEs rewarded staff with an average bonus of €425 per year, which is 16% higher than the average €355 bonus rewarded by large enterprises (250+ employees).

For an employee to receive a final net amount of €425, at the higher rate of tax of 40%, an employer would need to pay €885.42 gross, plus incur an additional cost of €96.95 based on 10.95% PRSI. This means that to pay an employee a bonus of €425 through payroll, it would cost an employer €982.37.

For a small organisation with a median of 23 employees, this would result in an overall cost of €22,595 per year to the employer. If the same bonus was rewarded using a One4all Gift Card or another gift eligible for the Benefit in Kind scheme, the total cost to the business would be significantly less at €9,775.

Under the Small Benefit Exemption Scheme, businesses can reward staff up to €500 once a year completely tax-free. With One4all Rewards, businesses can offer staff tax free gifts on an ongoing or annual basis, saving up to €653.65 per employee in total. 

Commenting on the research, CEO of One4all, Michael Dawson said, "At One4all Rewards we are constantly championing the Benefit in Kind allowance of up to €500 in tax free non-cash benefits as a huge benefit for Irish employers seeking to reward staff – and not without good reason. Companies who pay Christmas bonuses but don’t utilise BIK could be losing thousands as a result."

Source: www.businessworld.ie

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