Introduction
As 2024 unfolds, it’s crucial for employers to understand the nuances of payroll management, especially when it comes to advanced payments. Whether due to office closures during the holiday season or employees taking their well-deserved annual leave, understanding how to handle these payments is essential for compliance and employee satisfaction.
Advanced Pay Runs: A Guide for Employers
1. Handling Office Closures and Holidays:
- During periods like Christmas and New Year, when offices are often closed and payroll administrators may be on leave, advanced payroll processing becomes a key concern.
- Proactive payroll planning ensures employees receive their wages without disruption during these periods.
2. Employee Rights to Advance Payments:
- Employees planning to go on annual leave have the right to request their wages in advance.
- Addressing these requests efficiently not only complies with employee rights but also boosts morale and trust.
Creating Advance Pay Runs Within and Across Tax Years
1. Within the Same Tax Year:
- Pay runs for the same tax year can be prepared, executed, and reported to the Revenue in advance without complications.
2. Spanning Two Tax Years (e.g., Dec 2034/Jan 2045):
- While pay runs can be processed in advance, the actual payment to the employee must be in the same tax year as processed. The submission to The Revenue submissions must be before or on the date of payment, and align with the year of the payment date.
- The allocation of Income Tax tax credits and standard rate cut-off points by Revenue is based on the payment date, not the period covered by the payment.
- The earning of PRSI Insurable Weeks is based on the week worked. Not the date paid.
3. Example Scenario:
- If payment is due on 3rd January 2024, but the office reopens only on 10th January, the pay run can be set up in December 2023 with a payment date of 3rd January 2024.
- A bank transaction should be prepared in advance with an execution date of the 2nd or 3rd of January 2024.
- The submission to Revenue can be done in December, but the payment must be scheduled for the actual year of payment.
- There is an exception, if the scheduled payment date falls on a bank holiday, then the actual payment can be brought forward to the closest working day before the scheduled payment.
4. Important Note:
Paying 2024 wages in 2023 can complicate tax returns for employees and increase paperwork for employers. Revenue will consider the 2024 wages to be income earned, and taxable, in 2023. Then there is also a mess to sort out with the PRSI Insurable weeks.
Handling Annual Leave Payments in Advance
1. Employee Rights in Ireland:
- In Ireland, employees have the right to receive payment for annual leave in advance.
- Advanced leave payments may temporarily inflate payslips, affecting tax calculations.
2. Payroll Software Solutions:
- Modern payroll systems, like Parolla, provide features to nominate periods paid in advance, ensuring accurate tax calculations.
- This functionality prevents overcharging of taxes and accurately reports advanced payslips.
3. Tax Implications for Leave Spanning Two Tax Years:
- When leave spans two tax years, it’s important to avoid using future tax credits to prevent underpayment in the current year.
- The subsequent year’s payslips should reflect nil submissions while the employee is on leave, allowing them to benefit from tax credits upon their return.
Conclusion
Navigating advanced payroll payments requires careful consideration, especially when crossing tax years. By understanding these guidelines, employers can ensure compliance, maintain employee satisfaction, and streamline payroll processes in 2023.
Further Information
For detailed guidance, refer to the Revenue document updated in January 2024: Revenue Document on Payment Date Alignment and General Issues.
See our guide documentation on how to pay early over new year.