15 tax free ways to reward your employees
By Paul Mee, Tax Partner, Mazars
Employers are always looking for different ways to incentivise and reward employees tax efficiently. After all, simple salary increases and bonuses both attract income tax, PRSI and USC for the employee and employer’s PRSI.
However, there are many ways to reward staff without attracting income tax or employer’s PRSI. These include:
- Once off non cash gifts or prizes up to the value of €500 per year, such as vouchers (introduced in Finance Act 2015)
- Certain monthly or annual travel passes for bus, railway or ferry transport
- One medical check-up per year
- Professional subscriptions or membership fees, where clearly required to carry on the person’s duties of employment
- Course and/or exam fees where the study is relevant to the employer’s business
- Examination Awards in certain circumstances
- Mobile phones provided for business use (incidental private use is permitted)
- Use of a company vehicle where any private use is secondary to the business use, or where the vehicle is not capable of being used as a private vehicle
- Reasonable employer contributions to employee social club, where membership is available to all employees
- Free periodicals, newspapers etc that are relevant to the employer’s business
- Certain long service awards for employees with more than 20 years’ service – tangible articles costing up to €50 per year of service (certain conditions apply)
- Sports and recreational facilities provided to all staff on employer’s premises
- Certain payments to e-workers (more detail below)
- Cycle to work scheme (more detail below)
- Pension contributions (more detail below)
eWorking involves an employee working for substantial periods outside the employer’s business premises. Employees can either be working from home or on the road and will have to spend time making calls and/or logging on remotely to perform work duties. The following costs associated with eWorking can be paid for tax free by an employer:
- Equipment provided to facilitate work in the employee’s home where any personal use is incidental to its overall use. This equipment would include computers, printers, software, telephone line, internet access, home high speed connection, office furniture etc.
- A sum of up to €3.20 per day towards the employee’s light and heat expenses. This daily rate does not prevent the employee claiming additional vouched expenses for light and heat where the actual cost of the services exceeds €3.20 per day
- Costs of business calls on home or own mobile phones
This scheme does not have any impact on the employee claiming mortgage interest relief on their family home.
Cycle to work scheme
An employer can purchase a new bicycle and safety equipment on behalf of an employee up to the value of €1,000 tax free. The bicycle and equipment must be mainly used for travel to and from work, or for other work related journeys. Employer’s PRSI is also not payable in respect of the cost of the bicycle or equipment.
Employers are required to provide employees with access to, or time off to access, a pension scheme.
Where an employee is a member of an occupational pension scheme, an employer can make contributions in respect of an employee without attracting a benefit in kind. Therefore, the company can claim a deduction for the amount paid in respect of the contribution and there are no tax consequences for the employee and no employer PRSI is payable.
If an employee is not a member of an occupational pension scheme, employer contribution to an employee’s PRSA pension fund are not subject to income tax or PRSI if the amount paid is under permitted limits; however, USC will remain chargeable.