Employee Benefits

How to choose and implement the best tax-efficient benefits for your employees in Ireland

Oct 31, 2023
employee using their mobility allowance to commute to work
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In the ever-evolving landscape of human resources, the strategic implementation of employee benefits holds the key to unlocking a motivated and engaged workforce. For HR managers and decision-makers in Ireland, navigating the realm of tax-efficient benefits is not just about keeping employees satisfied but also about maximising the value of each offering. In this comprehensive guide, we'll explore the intricacies of selecting and implementing the best tax-efficient benefits, ensuring that your organisation stands out as an employer of choice.

Pensions

One of the most tax-efficient employee benefits in Ireland is a pension plan. Contributions to approved pension schemes are eligible for tax relief at the employee's marginal tax rate. For higher earners, this can result in significant tax savings. Employers can also make contributions to employees' pensions, which are not subject to income tax or USC, making it a valuable perk for retention.
Company pensions come in two primary forms: defined benefit and defined contribution. A defined benefit pension plan determines the retirement payout based on factors like an individual's salary and the duration of their participation in the plan. On the other hand, the more prevalent option is the defined contribution plan. In this arrangement, employees consistently contribute a fixed amount to their pensions each month, often with additional contributions from the employer. 
Employees enjoy income tax relief on their contributions, but there are limits imposed by revenue authorities. The eventual sum in their pension fund is influenced by factors such as the duration of their contributions, the growth rate of their pension, and the combined contributions from both the employee and employer.

Bike to Work scheme

Encouraging employees to adopt eco-friendly transportation, the Bike to Work Scheme allows employers to provide bicycles and safety equipment to employees tax-free, also saving employees on income tax and USC.
Using this scheme, employers can purchase new cycling equipment for their employees, who then repay the cost in instalments taken from their gross salary. They do not have to pay income tax, PRSI or USC on the repayments. The higher the tax band an employee is in, the more they will save in using the scheme. 
To use the Bike to Work scheme, you must pay the shop or supplier for the cycling equipment directly. You cannot let your employee buy it and then reimburse them. You need to get a written agreement from the employee stating that the bike is for their personal use to get to and from work. You then set up the salary deductions over an agreed period up to 12 months total. The repayments can be weekly, bimonthly or monthly depending on when the employee is paid.
The scheme encourages a healthier lifestyle and improved physical fitness and mental well-being. It’s also a great opportunity to integrate sustainable initiatives into your employee benefit offering.

Canteen meals

Free or subsidised meals provided to all staff in a canteen setting are exempt from taxation. This fosters a sense of community and ensures that employees are well-nourished throughout the workday. Especially during the cost-of-living crisis, reducing employees’ day-to-day expenses can be an attractive option particularly if you would like to encourage employees to work in-person in the office. 
To be exempt from tax, the meals must be provided in a canteen-style setting, you cannot give employees a meal allowance to spend elsewhere.  

Training and examination expenses

To encourage employee professional development, employers can reimburse training and examination expenses for job-relevant qualifications. This fosters a culture of continuous learning and professional development and demonstrates to your employees that you want to support their individual progress as well as that of your business.
You can pay for the course and exam fees directly on behalf of your employees, or repay them for the fees they have already paid. The course must be relevant to your business in order for it not to be considered a taxable benefit. 

Medical services

Employer-covered medical services, including annual check-ups, are not taxed in Ireland. 
These services contribute to the health and well-being of employees and are an often valued benefit that many prospects will want to know about when receiving a job offer. 
In regions where government medical facilities have long waitlists, healthcare is increasingly important.
There are restrictions in Ireland relating to medical expenses. Employer-paid medical insurance is considered BIK, but in-house medical plans and corporate GP services can be tax-free. 
Employees can already claim relief on the cost of health expenses. These can be their own health expenses, those of a family member or any individual’s, as long as they paid for them. 
For more information about medical services as an employee benefit, visit revenue.ie.

Long-service awards

Recognizing and rewarding long-serving employees can also be tax-efficient. Awards of up to €50 for each year of service from 20 years onwards and every 5 years thereafter are exempt from income tax. This means that for 20 years of service, an employer may provide an award gift worth up to €1000, for 30 years up to €1500, etc.
Recognising an employee’s company loyalty and many years of service is important for personal appreciation as well as demonstrating to new employees that you recognise the commitment of staff who stay with your business for many years.

Mobility allowance

With the cost of travel increasing, and many businesses hoping to encourage employees into the office more often, a mobility allowance can be a great way of taking the cost out of commuting. FREENOW's Mobility Budget is new to the Irish market and is tax-free up to €1000 per year per employee under the Small Benefit Exemption Scheme.
Employers can make considerable savings by using the exemption to provide their employees with a travel allowance. If you were to put a bonus of €1,000 through payroll for an employee who’s on the higher tax band and pays PRSI and tax, it would cost your business €2,313.54. By using the exemption, you can make potential savings of up to €1,313.54 per employee compared to putting it through payroll.
Using the scheme is straightforward. There is no need to file a return or make adjustments to payroll. The employer gives each employee their mobility budget allowance vouchers, and the invoice is treated as a fully deductible expense. Instead of using the payroll system, it is recorded as a ‘non-taxable benefit’.

How to implement tax-efficient employee benefits 

Strategic considerations for HR managers

Choosing the right tax-efficient benefits requires a strategic approach. Begin by understanding the specific needs and preferences of your workforce. Conduct surveys or focus group discussions to gather insights into what matters most to your employees. Consider factors such as demographics, lifestyle preferences, and the nature of your industry to tailor benefits that align with your employees' expectations.

Diversify your benefit portfolio

A well-rounded benefits package goes beyond traditional offerings. Explore a mix of perks, including health and wellness benefits, professional development opportunities, and recognition programs. Non-taxable benefits such as canteen meals, car parking, and employer pension contributions to Revenue-approved schemes can add significant value to your employees' overall experience.

Aligning benefits with organisational goals

The most effective employee benefit programs are those that align with the strategic goals of the organisation. For instance, if promoting a healthy lifestyle is a priority, consider implementing cycle-to-work schemes or subsidised gym memberships. If employee retention is a key focus, explore long-service awards and personalised recognition programs.

Communication is key

Even the most generous benefits can lose their impact if not communicated effectively. HR managers should invest in clear and transparent communication strategies to ensure that employees are aware of the full spectrum of benefits available to them. Regularly update employees on the value of their benefits, any changes in offerings, and guidelines on how to make the most of these perks.

Seek expert guidance

Given the complexity of tax laws, it's advisable to consult with tax experts or HR professionals who specialise in Irish tax-efficient benefits to ensure compliance and maximise benefits. Stay informed about the latest tax regulations and benefit-related laws in Ireland. Ensure that the chosen benefits adhere to legal requirements, and seek professional advice to stay ahead of any regulatory changes that might impact your offerings.
In conclusion, tax-efficient employee benefits in Ireland can be a powerful tool for HR leaders. By offering benefits that not only enhance the well-being of your workforce but also optimise tax savings, you can create a win-win situation that attracts, retains, and motivates employees while contributing to your organisation's financial stability. Understanding and implementing these benefits wisely can set your organisation on a path to success in the competitive Irish job market.
Click here to learn more about FREENOW’s mobility budget, Europe's favourite employee benefit.
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