How to Manually Calculate Payroll in Ireland: A Step-by-Step Guide

Manually calculating payroll in Ireland can seem complex due to the various taxes, deductions, and compliance requirements involved. However, understanding the process and knowing the key factors involved can help you navigate payroll calculations effectively. Whether you’re a small business owner, freelancer, or someone managing payroll manually for a few employees, this guide will help you understand how payroll is calculated in Ireland.

1. Understanding Gross Pay

The first step in calculating payroll is determining the gross pay. Gross pay refers to the total earnings before any deductions are made. It includes the basic salary or wage, bonuses, commissions, and any other earnings an employee is entitled to during the pay period.

For example:

• Hourly workers: Multiply the number of hours worked by the hourly wage.
• Salaried workers: Divide the annual salary by the number of pay periods in the year (e.g., weekly, monthly).

Example:

If an employee earns €15 per hour and works 40 hours a week, their gross pay for that week would be:

€15 x 40 = €600 gross weekly pay.

2. Applying PAYE (Pay As You Earn)

PAYE is the M that must be deducted from an employee’s gross pay. The tax is applied progressively, meaning different portions of an employee’s income are taxed at different rates.

Tax Rates for PAYE:

• Standard rate (20%): Applied to earnings up to a certain threshold, called the Standard Rate Cut-Off Point.
• Higher rate (40%): Applied to earnings above the standard rate threshold.

Each employee’s cut-off point varies based on their tax credits and circumstances. You can find the details of their cut-off point and tax credits in the Revenue Payroll Notification (RPN) provided by the Irish Revenue Commissioners.

Example:

Assume the employee has a weekly standard rate cut-off point of €700 and a weekly tax credit of €63.

If their gross pay is €800:

• The first €700 is taxed at 20%, which equals €140.
• The remaining €100 is taxed at 40%, which equals €40.

The total PAYE before tax credits is €140 + €40 = €180. After applying the weekly tax credit of €63, the final PAYE amount is:

€180 – €63 = €117 PAYE deduction.

3. PRSI (Pay-Related Social Insurance)

PRSI is another crucial deduction, contributing to social insurance benefits like pensions, unemployment benefits, and maternity leave. Both employees and employers are required to contribute.

PRSI contributions are based on earnings and classified into contribution classes. Most employees fall under Class A. The percentage rate for Class A PRSI is:

• 4% for employees on all earnings above €352 in a week.

Example:

If the employee’s gross pay is €800, the PRSI calculation will be:

€800 x 4% = €32 PRSI deduction.

4. USC (Universal Social Charge)

The Universal Social Charge (USC) is an additional tax applied to gross income with multiple thresholds. USC rates in 2024 are as follows:

• 0.5% on the first €12,012 of annual income.
• 2% on the next €10,908.
• 4.5% on the next €47,844.
• 8% on income above €70,044.

USC is calculated on a cumulative basis, which means the total income for the year must be considered. However, for simplicity, you can divide the annual income thresholds by the number of pay periods to calculate weekly or monthly USC.

Example:

For an employee with a weekly income of €800:

• The first €231 of weekly income (equivalent to €12,012 annually) is taxed at 0.5%.
• The next €210 (€10,908 annually) is taxed at 2%.
• The rest, up to €700, is taxed at 4.5%.
• Any amount above €700 is taxed at 8%.

So, USC for this week would be:

• €231 x 0.5% = €1.16
• €210 x 2% = €4.20
• €269 x 4.5% = €12.11
• €100 x 8% = €8.00

Total USC = €1.16 + €4.20 + €12.11 + €8.00 = €25.47.

5. Other Deductions (if applicable)

Beyond PAYE, PRSI, and USC, there may be other deductions to consider:

• Pension contributions: If the employee contributes to a pension scheme, the amount should be deducted.
• Health insurance or other benefits: Voluntary deductions for health insurance, trade union subscriptions, or other schemes must also be accounted for.

6. Calculating Net Pay

Finally, to calculate the employee’s net pay, subtract all deductions from the gross pay. The formula is:

Net Pay = Gross Pay – (PAYE + PRSI + USC + Other deductions)

Example:

Let’s summarize the deductions for our employee with a gross pay of €800:

• PAYE = €117
• PRSI = €32
• USC = €25.47

Therefore, the total deductions are:

€117 + €32 + €25.47 = €174.47

Now, subtract the total deductions from the gross pay:

€800 – €174.47 = €625.53 net pay.

7. Employer Contributions

While the focus is on employee deductions, employers also have responsibilities. In addition to calculating PRSI for the employee, employers must contribute an additional PRSI percentage, usually around 11.05%, depending on the employee’s earnings. These employer PRSI contributions are not deducted from the employee’s pay but must be paid by the employer directly to Revenue.

Final Thoughts

Manually calculating payroll in Ireland requires a clear understanding of tax rates, thresholds, and employee-specific details such as tax credits and PRSI classes. While manual payroll can work for smaller businesses or one-off situations, using payroll software or outsourcing payroll service provider can simplify the process and ensure compliance with evolving tax laws.