With Christmas around the corner, you may be looking for tax-efficient ways to give your employees a bonus. Gifts or perks with a monetary value must usually be treated as taxable income – they are what we call a benefit-in-kind, or BIK. However, there is one way to give each employee up to €1,500 per year without incurring any additional taxes. No income tax, no PRSI (employer or employee), and no USC.
Ireland’s Small Benefit Exemption Scheme
Imagine you want to give a bonus to an employee at the end of the year. If you just add €1,500 to their December salary, you will have to match that amount with hundreds of euros in payroll taxes (how much depends on their tax bracket). Your generous gesture will cost you considerably more than you thought. However, the Small Benefit Exemption means that a gift of €1,500 costs you €1,500 and no more.
The essentials of the scheme are:
- give up to €1,500 per employee, but no more
- for full-time OR part-time employees on the payroll
- give the gift at any point in the year
- you can split the amount across up to five gifts in any year
- various conditions apply to ensure the sum stays tax-free, as discussed below
Vouchers, gifts, and cards are tax-free, but not cash
One of the conditions of this scheme is you cannot give cash to your employees! To benefit from the exemption, the gift must be in a non-cash form. If you give your employees cash, this will have to be taxed. Store gift cards and the multi-retailer vouchers One4All, Allgifts, and Me2You are good ways to give this small benefit, but their downside is that they can only be spent in the shops or outlets that accept them, which is why I explore other options below.
Any employee is eligible for a small benefit
You can give this benefit to any employee of the company, including directors and shareholders, as long as they are on the payroll. Part-time employees qualify too. It’s an entirely voluntary scheme and there is no obligation to give a benefit to all employees. You can choose to reward only to a select group, and you can give different amounts to different employees. Because it’s meant to be a gift that is in addition to the person’s regular salary, it’s very important that you do not use the benefit as part of a salary sacrifice arrangement.
You can give five small benefits in any year
How much you decide to give is up to you, but the absolute maximum you can give is €1,500 for any employee. If you give more than €1,500 – even €1,501 – the entire amount will be subject to PAYE, USC, and PRSI. You could give this sum in one go or split the payments across the year with a maximum of five times in the year. You can also give a different amount each time; just be mindful of the total annual value and don’t pass the threshold.
You can give the small benefit at any time
The end of the year is when we think of giving our employees bonuses, and with Christmas falling in December it is quite common for employers to make this the moment to give small gifts as well. But you can give this benefit to employees at any point in the year should you wish, there is no specific date you must stick to. In fact, it could be better for your cash flow to spread the cost across the year, or you might consider when this boost would be most appreciated by an employee (like before a big life event or the school holidays).
The Small Benefit Exemption is great for employers and employees
What I like about this exemption is its simplicity. It’s open to any employer and completely voluntary. If you want, you could offer the benefit one year and not the next. You can give different amounts to different employees. The only bit of admin involved is that you must notify the payments to Revenue as part of Enhanced Reporting Requirements (ERR). Your payroll software probably has a fast and easy way to log such payments and will automatically submit them when you submit your payroll on ROS.
This scheme is a nice way to incentivise and personally reward an employee. They get a little something extra, and you haven’t had to pay any payroll taxes on the amount given. Just be aware that if you ever get audited, your accounts will need to show that the total amount invoiced using the exemption does not exceed the number of employees multiplied by €1,500.
Vouchers and gift cards for employees in Ireland
I mentioned above that store cards and the vouchers like One4All are popular options. But you could opt to buy a gift such as gym membership, spa treatments, or concert tickets instead. There are also now various alternatives to store gift cards in the form of prepaid cards that can be spent in any shop or business that accepts Mastercard (a few options are listed below).
Just make sure, if you opt for a prepaid payment card, that it’s not a type that allows for cash machine withdrawals. If you can redeem a gift card for cash, or use it at an ATM, it will not be valid for the exemption.
Swirl card
Swirl’s gift card is a prepaid, non-reloadable, single-load physical card accepted worldwide at any outlet that accepts Mastercard – online or offline – and is fully compliant with the small benefit exemption.
Perx card
The Perx Reward prepaid card is a digital or physical card that can be used anywhere Mastercard is accepted and is also fully compliant with the scheme. Like other similar products, cards arrive securely locked, ready for activation by employees.
Allgo card
This option allows you to award points to your employees throughout the year, and then you can reward those points with the appropriate benefit amount at the end of the year. This is a nice option if you are linking the benefit to their day-to-day performance.
CleverCards
You can order CleverCards digital Mastercards online and send them to employees instantly or at a scheduled date.
OptionsCard
OptionsCard for Business is a little different. They allow the recipient to mix and match how they use the amount you have given them – purchasing using a Mastercard or swapping for 60+ national retailer gift cards. This means they could use part of your gift to send a loved one a gift card if they choose.
