Employee net pay arrangements are where the employer has agreed to pay the employee an amount of money in-hand, after taxes have been deducted.
This arrangement is generally discouraged by Revenue, and most business advisors, but is not prohibited. The arrangement is most often found in the construction sector, or where an employee might be paid in cash.
The main arguments against net pay arrangements are:
- All the employee’s personal tax liability is a risk to the employer.
- Employees are unfairly compensated for the same role.
There are two aspects to the tax liability risk. Firstly, if there are changes to the tax rates, then the employer pays those differences. The employee is insulated from these. More significantly, since the improvements in the myAccount system (circa 2019) employees are now able to adjust their tax credits and standard rate cut off points online. They can move those credits around between jobs. If an employee changes their credits/SCROP they can dramatically increase the amount of tax that the employer needs to pay while leaving their take-home pay unaffected. They can then apply those credits to another job.
The second bullet point is related to fairness and equality. Two employees may be doing the exact same job but have different credits, which results in higher taxes for one, and a larger gross income. One employee might be USC or PAYE exempt, there are a lot of permutations.
That being said, there are cases where an employer may still choose to pay net amounts. In which case, Parolla has a Net to Gross adjustment process to allow you to convert the target net pay into a grossed-up amount.
The net-to-gross adjustment is displayed on the employee’s payslip.