The recent budget had a raft of announcements about how we would be getting more money in our pockets thanks to changes with our pay. Many can look forward to paying less on the Universal Social Charge and less on income tax. They also announced there would be an increase in the PRSI contributions rate. But what does it all mean? We know it means more money essentially but how? Do you ever get your payslip at the end of the month and wonder why so much of your gross pay never makes it into your pocket? What do all nasty letters that take your money in between mean?
Marian Ryan, Consumer Tax Manager at Taxback.com said that there are few documents that hold as much significance as the humble payslip.
“Whether you're an experienced professional or just starting your career journey, deciphering this vital piece of paper is essential to understanding your earnings, deductions, pension contributions and other deductions that impact your take home pay,” she said.
What is also of interest is that you are entitled to a payslip and if your employer does not issue you one, depending on the nature of the job, they may have committed an offence and get a fixed payment notice.
“If you suspect any discrepancies in your pay, your first step should be to engage with your employer informally. Request clarification on any elements of your payslip that are unclear or inquire about any missed payments,” said Ms Ryan.
Firstly, on your payslip you will find your PPS Number, which is a unique number assigned to you and used by the Government to identify you for tax purposes and when you need to avail of social welfare benefits or public services.
Your gross pay is your total pay before any money is deducted. Total pay includes your basic salary, any shift premium, overtime or bonuses. When you see a job advertised the gross pay is usually what you will see in the ad. Net pay then is the amount you actually take-home.
You will see ‘tax credit’ on the payslip and this is the amount of money that can be deducted from the tax you pay. Revenue gives you an annual Personal Tax Credit if you are a resident in Ireland.
Then there’s Pay Related Social Insurance (PRSI) contributions and these fund social welfare payments and pensions.
“PRSI is a compulsory payment for most people working in Ireland, with very few exceptions. Contributions are divided into ‘PRSI Classes’ which is determined by the type of employment you are in and your weekly earnings,” said Ms Ryan.
The‘Universal Social Charge’ is a tax that was introduced in January 2011 to replace the income levy and health levy. Depending on your circumstances, you pay USC at the standard rate or at the reduced rate. You’ll pay this if your gross income is over €12,012 per year.
PAYE stands for ‘Pay As You Earn’ and if you are an employee, you will generally pay taxes through PAYE. The system is in place to ensure that yearly tax amounts due are spread evenly on each payday over the course of the full tax year. Every time you are paid, your employer applies PAYE tax based on information from Revenue on your employee tax credit certificate.
“If Revenue doesn’t have up-to-date information on your personal circumstances this could result in the incorrect allocation of bands and credits. You should inform Revenue of any significant changes to your personal circumstances that could impact the taxes you pay such as if you get married or enter into a civil partnership. If you do not inform Revenue about these changes, you could end up paying more tax than you need to,” said Ms Ryan.
You will see the “PRSI Class” on your pay slip. PRSI contributions are categorised into various ‘PRSI Classes’ which dictate the level of PRSI you are responsible for and your ‘contribution rate’. The type of employment you are in as well as your income determines the specific class and contribution that applies to you. There are a variety of PRSI classes such as A, B and so on. There are also subclasses like A1 and J0. Your PRSI class will also determine what social welfare benefits you qualify for such as ‘Jobseekers Benefit’ or the State Pension.
You will also have a weekly or monthly cut off depending on how often you get paid. This represents the maximum income threshold for each payment cycle before you reach the higher tax bracket.
“Whenever you receive income, your tax is calculated at the standard tax rate of 20% up to this predefined threshold. If your income is over the threshold, you pay tax at the higher rate of tax at 40%. The amount of your tax rate is determined by your personal circumstances like whether you are single, married, in a civil partnership or a widowed person. If you have multiple jobs, your tax rate band will be divided between the incomes you receive,” said Ms Ryan.