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Illness Benefits and Injury Benefits are payable by the Department of Social Protection (DSP). It is paid to qualifying employees in the event that they are unable to work due to illness or injury.
There are reasonably complicated rules around:
- Who is a qualifying employee
- The number of days stand down
- Rates payable
- Duration of illness
From an employer’s perspective, most of the eligibility information is prepared and handled by the employee in their communications with the DSP.
The DSP will advise the employee on how much of a benefit they are entitled to. The employee then nominates whether the benefit is paid to themselves directly, or to the employer.
Changes introduced in September 2022 require employers in Ireland to pay ‘sick pay’ to employees. Entitlement is being phased in over time. Initially, employees are entitled to three days, going up to 10 days by 2026. See the full schedule here.
There are typically three scenarios to consider:
- An employer does not operate a sick pay scheme
- the Illness Benefit is paid to the employee by the DSP, with no other payment from the employer
- Illness Benefit is paid to the employee by the DSP
- the employer makes an additional payment to the employee for sick leave
- Illness Benefit is mandated to the employer
- the employer makes additional payments to the employee
Sick pay scheme
From 1 January 2023, employees have a statutory right to 3 days’ sick pay a year.
The entitlement to paid sick leave is being phased in over 4 years:
- 2023 – 3 days covered
- 2024 – 5 days covered
- 2025 – 7 days covered
- 2026 – 10 days covered
When employees need additional sick leave to the statutory days/ agreed contracted sick days, the primary obligation is for the employer to keep up to date with the employee RPNs as issued by Revenue.
Where the employee is on a cumulative tax basis, they are entitled to request that their USC and Income Tax refunds are processed as part of the regular payroll cycle.
The employee does not need to be ceased. If refunds are not requested, or due, then no payslip needs to be processed.
However, it should be noted that time spent on certified sick leave is considered to be worked time for the purposes of calculating annual leave accrual.
We suggest that you continue to process payslips for employees who are out on sick leave. Use the Unpaid Leave type available to keep track of hours.
Employers with sick pay schemes
There may be a contractual requirement for the employer to continue to pay the employee up to their full regular income, or a proportion of their regular income, while an employee is on sick leave.
Different companies have their own requirements around how the employee declares the value of their Illness Benefit from the DSP.
Some companies are happy to accept verbal or written evidence about the amount of benefit. Others require the employee to pass the Illness Benefit to the company first so that it can be paid back as part of their sick pay policy.
The key thing to be aware of with Illness Benefit is that it is taxed at source before it gets paid to the employee or employer.
This is achieved by Revenue applying changes to the employee Revenue Payroll Notification (RPN) and adjustments to the employee tax credit and rate cut-off points.
There are generally two scenarios depending on whether the employee mandates their DSP Illness Benefit to the employer or not.
Benefit is paid directly to the employee
Where the employee is paid the Illness Benefit directly from DSP, the employer only needs to adjust their regular income according to their sick pay contract agreements and make payments as normal.
Revenue will adjust the RPN to take account of the Illness Benefit. The only thing the employer needs to do is make sure they’re using the latest RPN.
In this scenario, we suggest you use a Paid Leave earnings type and set their normal earnings to zero hours and zero value.
This will allow you to make payments to the employee. It will track the time taken on leave, and will also accrue annual leave at the normal rate.
Benefit is mandated to the employer
This gives the employer exact knowledge of how much Illness Benefit is provided by DSP. The employer isn’t relying solely on the employee’s information. However, the setup is a little more complicated.
You will remember that Illness Benefit is taxed at source. It should not attract further taxes when paid back to the employee! In this scenario, you need to pass the Illness Benefit back to the employee tax-free.
For best reporting and traceability results, we suggest running the employee payslip with two earnings types:
- An Illness Benefit earnings line
- for the number of hours of leave and the amount of Illness Benefit received from DSP
- this line will not be taxed.
- The employee’s normal wage/salary is set at zero hours
- the balance of payment will be taxed at the employee’s new RPN rates
The Illness Benefit earnings type needs to be configured to match your particular contractual needs. For instance, whether the benefit will be considered when calculating pension contributions or bonus/pay type of earnings.
It should be defined as non-taxable, with individual employee rates, and a fixed amount per pay run cycle.