PRSI Contribution Increases in Ireland: Higher Employer & Employee Payroll Deductions Explained

Ireland’s payroll landscape continues to evolve, and one of the most important updates for employers is the increase in PRSI (Pay Related Social Insurance) contributions. From 2026 onwards, gradual PRSI rate increases are being introduced as part of long-term government planning to support the Social Insurance Fund and future pension sustainability.

While the percentage change may appear small, PRSI increases directly affect gross payroll costs, employee deductions, and employer budgeting. Understanding these changes is essential for Irish businesses aiming to stay compliant and avoid payroll calculation errors.

What Is PRSI and Why Is It Increasing?

PRSI is a mandatory social insurance contribution paid by both employers and employees. It funds key benefits including:

• State Pension

• Illness and maternity benefits

• Jobseeker’s payments

• Other social protection supports

The Irish Government has introduced phased PRSI increases to strengthen the long-term sustainability of the social welfare system. These adjustments are being implemented gradually over several years, with one of the scheduled increases taking effect in October 2026.

PRSI Rate Changes in 2026

From 1 October 2026, PRSI contribution rates are expected to increase by approximately 0.15% for both employers and employees under standard Class A PRSI.

Typical PRSI structure after the adjustment:

• Employee PRSI: around 4.35% on applicable earnings

• Employer PRSI (higher rate): approximately 11.40%

• Employer PRSI (lower rate band): approximately 9.15%

Although the increase is modest, it applies to every payroll run, meaning businesses will see a noticeable impact on overall labour costs over time.

How PRSI Increases Affect Employers

1. Higher Payroll Costs

Employer PRSI is calculated as a percentage of employee gross earnings. As PRSI rates rise, businesses must prepare for:

• Increased monthly payroll expenses

• Adjustments to staffing budgets

• Potential changes to workforce planning strategies

Companies with large teams or high payroll volumes may feel the financial impact more significantly.

2. Updated Payroll Calculations

Payroll systems must be updated to reflect the new PRSI rates immediately once changes take effect. Employers should ensure that:

✔ Payroll software includes updated contribution percentages
✔ PRSI thresholds are correctly configured
✔ Payslips display accurate deductions

Even small calculation errors can lead to incorrect submissions to Revenue and may require costly corrections.

3. Interaction with USC and PAYE

PRSI increases rarely occur in isolation. In 2026, employers must also consider:

• Universal Social Charge (USC) band adjustments

• Minimum wage increases affecting gross pay

• Real-time PAYE reporting requirements

When employee earnings rise due to wage increases or overtime, PRSI deductions may also increase, creating a compounding payroll effect.

Impact on Employees and Take-Home Pay

While PRSI increases are primarily a structural funding measure, employees may notice:

• Slightly higher deductions on payslips

• Small reductions in net pay compared to previous years

• Changes in annual income tax summaries

Clear communication is important. Employers should explain that PRSI contributions support long-term social welfare benefits, including pensions and income supports.

Common PRSI Payroll Mistakes to Avoid

During rate changes, payroll teams often encounter issues such as:

❌ Applying new PRSI rates before the official implementation date
❌ Forgetting to update employer PRSI percentages
❌ Miscalculating PRSI on bonuses or irregular payments
❌ Failing to test payroll systems after updates

Conducting payroll testing before October 2026 can help prevent errors once the new rates begin.

Why PRSI Changes Increase the Need for Professional Payroll Support

Irish payroll compliance has become more complex due to frequent updates in tax bands, USC thresholds, and social insurance contributions. Many businesses are choosing professional payroll services to:

• Monitor legislative updates

• Implement rate changes automatically

• Reduce administrative workload

• Avoid Revenue penalties

Having expert oversight ensures payroll remains accurate even when multiple regulatory changes happen in the same year.

Key Payroll Actions for Employers in Ireland

To prepare for PRSI contribution increases, employers should:

✔ Review payroll software updates well before October 2026
✔ Forecast higher employer PRSI costs in financial planning
✔ Communicate changes clearly to employees
✔ Monitor Revenue guidance for any additional adjustments

Proactive planning helps businesses manage costs while maintaining compliance with Irish employment regulations.

Final Thoughts

The PRSI contribution increases in Ireland represent a gradual but important shift in payroll deductions for both employers and employees. While the percentage change may seem small, its cumulative effect across payroll cycles can significantly influence business expenses and employee take-home pay.

By understanding the changes early and updating payroll systems correctly, Irish businesses can ensure smooth transitions and continued compliance throughout 2026 and beyond.