Year-end considerations for Employment tax and Reward

Introduction

In this newsletter we outline some key employment tax and reward considerations for employers as they approach year-end and begin to plan for the upcoming calendar year.

PAYE settlement agreement for 2023 tax year

As the deadline for making an application to Revenue to avail of the PAYE settlement agreement (PSA) approaches, employers may wish to consider whether any non-cash benefits were provided to employees during 2023 without the operation of PAYE, USC and PRSI. These may qualify for inclusion on a PSA.

A PSA allows an employer to make one annual settlement of PAYE, USC and PRSI on minor and irregular non-cash benefits provided to employees where the operation of PAYE is impractical. The PSA mechanism enables employers to bear the cost of the PAYE, USC and PRSI due on the benefits themselves, without passing this on to the employee.

In order to be regarded as a qualifying emolument which can be reported via a PSA, the emolument must be a non-cash benefit which is minor in nature and amount, and irregular as regards the frequency to which it is provided.

In order to avail of the PSA mechanism for 2023, an application must be submitted to Revenue in writing by 31 December 2023. The deadline for submission of the PSA to Revenue and payment of the tax liabilities due is 23 January 2024.

Enhanced Reporting Requirement from 1 January 2024

As we approach year-end and come closer to the introduction of the Enhanced Reporting Requirement (ERR) on 1 January 2024, employers are busy making preparations to meet their obligations under this new reporting regime.

Background

From 1 January 2024, employers in Ireland will be required to report details of certain tax-free payments and benefits made or provided to employees and directors. This is subject to a commencement order. The new rules will require employers to notify Revenue on or before the date the following tax-free items are provided to employees:

• Travel and subsistence reimbursements
• Small benefit exemption
• Remote working allowance
  

This requirement only relates to payments to employees such as for the reimbursement of business travel costs. Travel and subsistence expenditure incurred on a corporate credit card (paid by the company) or through a central booking system are not currently within scope.

Reporting

Revenue are working with a service user group including expense and payroll software providers to facilitate the direct reporting of non-taxable payments from expense/payroll software. Employers should engage with their software providers to understand what solutions they may be able to provide.

If direct reporting is not possible or appropriate, two alternative mechanisms for reporting will be available, i.e., ROS File Upload and ROS Online Form.

The ROS File Upload will allow employers to input the relevant data into a file which can then be uploaded to ROS. However, the file will need to be in a specific format (JSON or .xml) and will need a specific data structure based on schema available on the GitHub section of Revenue’s website. Revenue plan to release a video with instructions on how to covert an excel file, which contains the information which must be reported, into a JSON file format. Your IT team or tax technical experts will need to be involved in creating the required file format.

The ROS Online Form will allow employers to manually input the required information directly into ROS. This is likely to be only relevant for small employers with minimal reporting obligations. There is a video available on Revenue’s website with instructions on how to directly input detail on ROS. The video can be found here Submitting payment details to Revenue.

Next steps

With less than 1 month to go, it’s necessary to prepare to capture and report this data in real-time (if this hasn’t already commenced). Amongst other things, employers should focus on:

• the format and accuracy of data;
• the frequency of reporting that will be required;
• what expense categories need to be reported;
• what method they will use to report the data; and
• stakeholder communication.

Employers should also consider the additional information this reporting requirement will provide Revenue. Revenue has stated that this data will be used in their risk assessment and audit targeting processes. It is necessary to ensure that all relevant policies are in line with legislation and Revenue guidance, and that there are robust processes and controls in place to ensure all payments are being treated correctly from a tax perspective, and reported on time.

Deloitte can assist employers to prepare for the enhanced reporting requirements.

Taxation of share options via payroll from 1 January 2024

The Finance Bill (No. 2) of 2023 which was published on 19 October 2023 included a significant change for employers, and employees, with the introduction of PAYE withholding on gains arising on the exercise of share options by an employee on or after 1 January 2024. This change was unexpected and was not announced in the Budget. The short time frame between the announcement and the introduction of the change on 1 January 2024 will create certain challenges for employers.

While this may be a welcome change for employees who previously had to settle taxes due via self-assessment within 30 days of exercise, employers will need to establish processes and procedures to withhold the required taxes due on the exercise of the option and report the gain via payroll. Share option gains, where shares are acquired on the exercise of an option, will be considered notional payments. On this basis, under the PAYE regulations, an employer must report share option gains:

• on or before the exercise of the option; or
  
• if no actual cash emoluments are paid on that day on the earlier of the next pay date after the exercise of the option and the 31st December of the year in which the option is exercised. As there is employee choice as to the timing of the exercise of an option the reporting before 31 December may be challenging and could require a bonus payroll run.

The calculation of the taxable share option gain will be particularly challenging for any mobile employees as it depends on a number of factors including the residence status of the employee at exercise, the number of Irish workdays they had during the vesting period and whether they are/were resident in a country with which Ireland has a Double Taxation Agreement. Employers will also need to consider whether PRSI in Ireland is applicable to the gain.

Employers should review their current share option plans (including Employee Share Purchase Plans (ESPP) where share purchases under the ESPP are regarded as share option exercises) and establish internal processes to ensure PAYE compliance obligations will be met for share option exercises, assignments and releases under these plans.

Employee communication is vital as employers will need to ensure employees are aware of the new withholding requirement and the removal of their personal obligations in respect of the exercise of share options. This may be confusing for employees initially as they will have self-assessment obligations for 2023 with an end-of-year income tax return not due until 31 October 2024 but no personal obligations for 2024.

Employers will still be obliged to file a Form RSS1 by 31 March following the calendar year to report the grant, exercise, assignment or release of all share options to employees during that year.

Deloitte can support employers to:

          - establish processes and procedures to meet their compliance obligations on share options,
          - determine how to source gains for mobile employees, and
          - draft employee communications.

Gender Pay Gap Reporting in Ireland

Gender Pay Gap reporting Regulations will apply to employers with 150 or more employees in 2024, and by 2025, the Regulations will apply to employers with 50 or more employees

December 2023 will see companies who meet the current 250 plus employee threshold publish their gender pay gap report for the second year. Under the Gender Pay Gap Information Act 2021, employers in Ireland are required to publish their gender pay gap metrics, explain the difference in the average hourly pay of women compared to men in their organisation and highlight their plans to eliminate or reduce the gap (if applicable) over time. The Regulations will also apply to employers with 150 or more employees in 2024, and by 2025, the Regulations will apply to employers with 50 or more employees.

Employers choose a ‘snapshot’ date in June of the relevant reporting year on which the calculations for reporting are based and, will reflect employees’ remuneration for the 12-month period that precedes the chosen snapshot date. Employers must publish their reports within six months of their snapshot data on their company website. There is currently no central portal where all employer reports can be published and accessed publicly.

Gender Pay Gap reporting can be used as a strategic tool for employers - it’s more than compliance. Communicating your gender pay gap metrics sends a message both internally and externally on your commitment to gender diversity, giving employees and broader stakeholders an insight into your culture, values, and commitment to building an inclusive work environment. Given the reduction in thresholds in 2024 and 2025, we would encourage companies who do not meet the threshold this year to start early and understand their gender pay gap metrics before they are required to publish and, to develop their Diversity, Equity and Inclusion strategy to promote gender balance in their organisation.

There are five steps in preparing to publish your gender pay gap report, which can be viewed in the graphic below:

Deloitte are available to assist companies with their Gender Pay Gap Reporting requirements by helping them understand the Regulations, their metrics, key drivers and communicating to key stakeholders in their organisation. Furthermore, Deloitte are available to help companies with their Diversity, Equity and Inclusion (DEI) strategies.