As we approach Christmas, many employers will reward their staff in the form of a bonus or gift. Here we look at how employees can benefit financially from the expansion of the Small Benefits Exemption Scheme.
The tax-free voucher limit for employers who want to reward their staff has been increased to €1,000, meaning workers could be in for a nice surprise if their employer chooses to avail of it.
The so-called Small Benefits Exemption Scheme, which was first introduced in 2004, is a handy way for companies to provide a small bonus or ‘thank you’ to workers that is exempt from PAYE, PRSI and USC.
It was previously a Revenue concession, before moving into legislation in Budget 2016, when the benefit was increased from €250 to €500 a year. However, the benefit was recently increased again from €500 to €1,000 a year in Budget 2023, being seen as a way for employers to give back to workers who are feeling the pinch during this inflationary period.
In his Dáil speech at the unveiling of the Budget, Finance Minister Paschal Donohue said: “I propose that these changes will apply in the current tax year, so that additional benefits can be paid this year if an employer wishes to do so.”
However, as with most Government supports, there are a few caveats…
Only non-cash payments
The bonus must not be in the form of a cash payment - as any cash benefit would be fully taxed, so the bonus must be given outside of payroll. Some popular alternatives are gift cards such as One4all vouchers or Perx cards, a supermarket gift voucher, a hotel voucher, or a membership to a gym or swimming pool.
Prior to 2020, employers could only provide one benefit per employee per year, regardless of the amount. However, owing to concerns over people’s ability to spend during the Covid-19 pandemic, the scheme was relaxed to allow two separate payments in a single tax year.
Limits
If the awarding of the one or two bonuses exceeds the €1,000 limit, then the full amount is liable for taxation – not just the difference.
Also, the bonus must not form part of a salary sacrifice agreement, where a worker is forced to give up part of their salary, or where the voucher’s value is taken out of an employee’s pay.
And while most employees will generally pay some form of PAYE, PRSI and USC, this is not a specific requirement to qualify for the relief so it's open to all employees really, including part-time workers and contractors.
What do employers need to know?
If you’re an employer who’s looking to reward your staff, the vouchers or gift certificates must be purchased from your company credit card or bank account - meaning you can’t reimburse your staff for vouchers that they have purchased themselves.
Unused allowances also cannot be carried over to the next tax year.
As well as being tax-free for your employees, employers are not charged the 10.75% PRSI that is normally liable on bonuses.
Get in touch
What are your thoughts on the Small Benefits Exemption Scheme? Do you think it's a good idea? Are you hoping your employer will avail of the new limit?
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