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[GUIDE] Payroll Compliance: How to Avoid Breaches

Introduction

Businesses consists of many moving parts. Sales, purchasing, advertising, human resources – the list goes on. One part of running a successful business is that of managing payroll. We say successful because efficiently run payroll is essential to business success. But how do you create payroll efficiency and, furthermore, avoid costly breaches?

In our guide, Payroll Compliance: How to Avoid Breaches, we’re going to dissect employer payroll obligations, payroll compliance, and how to avoid breaches. To do that, there are key areas we need to look at, starting with the basics. 

 

    Payroll Compliance

    A legal framework governs payroll in Ireland, the key components of which include: 

    1. Registering as an employer: An obvious inclusion, but vital, nonetheless. Before a business can hire employees, they must register as an employer with Revenue. This involves providing relevant business information and obtaining a tax registration number. 
    2. PAYE registration: PAYE (Pay As You Earn) is used to collect income tax and other deductions from employees' wages. Employers must register your employees for PAYE and deduct the appropriate taxes from their salaries. 
    3. Reporting payroll information: Employers must report employee wages and deductions to Revenue on a regular basis. ROS acceptance occurs on the 14th of each month, with payment accepted up to the 23rd of each month. This information must be accurate and reported on time.  
    4. Filing PAYE returns: Employers must file monthly PAYE returns with Revenue and include the total tax liability.  
    5. Tax deductions and contributions: Employers are responsible for deducting income tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI) from employees' wages. Again, these must be sent to Revenue. 
    6. Employee benefits and allowances: Certain benefits provided to staff may be subject to tax. These should be included in an employer’s payroll calculations. Examples include company cars, medical insurance, and pension contributions. 
    7. Keeping accurate records: It’s essential to maintain accurate and up-to-date payroll records. Employers must keep track of employee details, wage information, tax deductions and payment records. These records should be kept for a specified period as per legal requirements. 

    Taking the steps above ensure that employers gain the true benefits of maintain payroll compliance. These include:

    1. Avoiding penalties: The number one benefit, of course, is that employers avoid penalties which can include fines. This also helps to protect the business’s reputation. 
    2. Employee satisfaction: By sticking to the rules, employers shore up their payroll processes. The accurate and timely payment of wages helps to foster a positive work environment. 
    3. Building trust and credibility: Complying with payroll regulations demonstrates an employer’s commitment to ethical business practices. This builds trust and credibility with their employees, stakeholders, and the regulatory authorities. 
    4. Efficient financial management: Proper payroll compliance helps employers to manage their financial resources efficiently. In turn, they ensure accurate tax calculations and avoid potential financial setbacks. 

    As you can see, maintaining payroll compliance is both a legal requirement and a boost to business. Compliance allows employers to get on with running their business with one less thing to worry about.

     

      Outsourcing Payroll

      As part of our Payroll Proficiency Report, we looked at the popularity of outsourcing payroll and its benefits. 

      We discovered that 60% of the businesses we surveyed are convinced of the positive impact outsourcing has on the total cost of payroll handling. We also found that outsourcing helps with the administration of contracts, the on- and off-boarding of staff, the administration of presence and absence (e.g., time worked) and overall communication with third parties easier.

      If employers choose to outsource payroll, there are a number of data factors to consider. Here, too, GDPR plays a role, as the regulation states that a contract must exist between a data controller (business) and a data processor (payroll partner). The employer must ensure that the partner is compliant with GDPR and that employee data is only provided to the partner to process payroll.

      To fulfil their part of the contract, data processors must obtain certain business information. This can include the employer PAYE reference number, for instance. As with any other business, there needs to be a legitimate reason to hold an individual’s details. Data controllers and processors who hold employee payroll information to complete payroll, are covered under GDPR as it is seen as a legitimate reason.

       

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          Compliance and Employment Law in Ireland

          To understand payroll compliance, we must consider employment law in Ireland. Employees in Ireland are entitled to basic employment rights, and laws surrounding these ensure that employers adhere to them. Here, the term ‘employee’ can refer to two types of workers:  

          • A worker on a contract of service (an employee): These workers receive all protections under employment law.
          • A worker engaged through a contract for services (an independent contractor): These workers are not guaranteed the same rights, although legal protections do exist.  

          Across both arrangement, employers must calculate gross pay, taxes, and other deductions, and deliver payment directly. Furthermore, under employment law in Ireland, employers must register certain employee details. These include:

          • The name, address, and PPSN of each employee.
          • The date of commencement of employment of each employee.
          • Where relevant, the date of cessation of employment of each employee.

          According to Revenue’s rules on PAYE Compliance, employers must also keep and maintain a Register of Employees (or a copy of it) at the normal place of employment of each employee or at the main place of business of the employer.

          Similar rules also apply when outsourcing payroll. For instance, an employer may engage the services of a tax or payroll agent, and/or use a proprietary software payroll or human resources package. If so, it is once again the responsibility of the employer to keep and maintain the Register of Employees (or a copy of it).

           

            Contract of Employment and Pay

            The employer/employee relationship begins with a contract of employment. Employers must provide a new starter with a written statement of the core terms of employment within their first five days. Employers must also provide a written statement of the remaining terms within one month of the employee’s start date.  

            When it comes to pay, most employees receive at least the minimum wage of €11.30 per hour. Still, rates differ depending on the employee. For instance, apprentices, people aged under 20, and people employed by close relatives may receive a different rate. Employers must also account for Universal Social Charge (USC) and PRSI when calculating pay.   

            Leave is another cornerstone when calculating pay. Most employees receive annual leave and public holiday leave, usually four weeks of paid annual leave for each leave year. Part-time employees are generally entitled to 8% of the hours they have worked, up to four working weeks for each leave year. 

            Now that we’ve covered the essentials of employment law in Ireland and how to remain complaint, let’s look at GDPR and payroll compliance.

             

              GDPR Compliance and Payroll

              Like employment law, GDPR compliance and payroll go hand in hand. For the purpose of this guide, it’s best to understand three key elements of GDPR, which are:

              Data Management: Employers must process payroll and personal data lawfully, fairly, and in a transparent manner. Data must be maintained and protected and used only for the purpose gathered.

              International Transfer of Data: Under GDPR, employers cannot send an employee’s data outside the European Economic Area unless that country protects the rights of individual’s personal data. Transferring data outside of the EU requires extra caution and must meet the specific criteria as set out in the GDPR regulations.

              Data Processing: Businesses that handle payroll in-house are known as data controllers and data processors. If a business outsources their payroll, the partner becomes the data processor and the employer remains as the data controller. The data processor can process data on behalf of the employer once there is a written contract in place. 

               

                Office worker wearing glasses

                  Remaining GDPR Compliant

                  Businesses and larger organisations in particular process large amounts of data, including personal data. As such, employers must remain compliant with GDPR. Do to that, it’s best that employers:

                  1. Maintain an overview of changing obligations and accountability.
                  2. Assign a Data Protection Officer. If employers don’t have a qualified employee, outsourcing is an option. 
                  3. Collect and collate the required payroll data documentation.
                  4. Undertake Data Protection Impact Assessments.
                  5. Develop instructions for how to manage data/payroll processors.
                  6. Be aware of breaches, the implications, and what you need to do to correct them. A breach may require you to contact the Data Protection Commissioner.
                  7. Develop policies and procedures to ensure compliance with GDPR legislation throughout the business.

                  Regarding payroll, employers must protect related information on behalf of their employees. Employers must:

                  • Only collect information they need for the specific payroll need.
                  • Protect employee payroll information.
                  • Maintain employee data for the purpose of processing payroll.
                  • Only keep the employee payroll information they need and for as long as they need it to.
                  • Allow employees to view personal information upon request.

                  Further to the above, employers should keep a record of how they protect data. The easiest way to do this is to ensure that computer and payroll software passwords are set and updated regularly. 

                    How GDPR affects Payroll

                    Employee information must be of paramount importance to employers. To ensure this, employers must give employees, new starters, and even job applicants a privacy notice detailing how their information will be managed. Employees can request to see this information at any time and, should there be no reason for the employer to keep it, employees can ask for it to be deleted. 

                    As you can see, GDPR plays a major role in the management of employee and payroll information. It’s crucial to stay on the right side of GDPR as the repercussions can include hefty fines.

                     

                      Other Compliance Considerations

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                        Earnings Hours and Employment Costs Survey

                        The purpose of the Earnings Hours and Employment Costs Survey (EHECS) is to collect, compile, and disseminate quarterly and annual earnings and labour costs statistics across economic sectors in Ireland. Returns for the EHECS are due in January, April, July and October. 

                         

                          Enhanced Reporting Requirements

                          New Enhanced Reporting Requirements will come into effect on January 1st, 2024. From this date, employers who pay any of the following three non-taxable expenses/benefits to their employees and directors must report them to Revenue. The three non-taxable expenses/benefits are:

                          • Small benefit exemption
                          • Remote working daily allowance
                          • Travel and subsistence

                          There are specific requirements within each three expenses/benefits that employers must report. For more information on these, read our article on the Enhanced Reporting Requirements.

                           

                            Gender Pay Gap Reporting

                            Signed into law on July 13th, 2021, the Gender Pay Gap Information Act 2021 (the “Act”) amends the Employment Equality Acts 1998 to 2015 in the form of the Employment Equality Act 1998 (Section 20A) (Gender Pay Gap Information) Regulations 2022 (the “Regulations”).

                            The Regulations apply to employers with 250 or more employees for the first two years after their introduction (i.e., 2022 and 2023). In 2024, the Regulations will extend to employers with 150 or more employees. By 2025, the Regulations will apply to employers with 50 or more employees. 

                            Under the Regulations, employers must report the:

                            1. Mean hourly remuneration gap.
                            2. Median hourly remuneration gap.
                            3. Mean bonus remuneration gap.
                            4. Median bonus remuneration gap.
                            5. Mean hourly remuneration gap of part-time employees.
                            6. Median hourly remuneration gap of part-time employees.
                            7. Mean hourly remuneration gap of temporary contract employees.
                            8. Median hourly remuneration gap of temporary contract employees.
                            9. % of male employees who were paid bonus remuneration and the % of female employees who were paid bonus remuneration.
                            10. % of male employees who received benefits in kind and the % of female employees who received benefits in kind
                            11. Percentage of males and females when divided into four quartiles ordered from lowest to highest pay:
                            • Lower remuneration quartile pay band.
                            • Lower middle remuneration quartile pay band.
                            • Upper middle remuneration quartile pay band.
                            • Upper remuneration quartile pay band.

                            Additionally, where pay gaps are found, employers must outline the reasons why and what steps they’re taking (or proposing) to eliminate or reduce the gaps.

                             

                              Statutory Sick Pay Scheme (SSP)

                              Since January 1st, 2023, employees have the right to three days of sick pay a year. This is called statutory sick pay as it’s the legal minimum. Sick pay is paid by the employer at 70% of the employee’s normal pay up to a maximum of €110 a day. From January 1st, 2024, paid sick leave will increase from three days to five days a year and, as the scheme is being introduced over several years, entitlement will increase as follow:

                              • 2024: Five days covered
                              • 2025: Seven days covered
                              • 2026: 10 days covered

                              Sick days can be taken as consecutive days or non-consecutive days. To avail of sick pay, the individual must be an employee, have worked for you for at least 13 continuous weeks before taking ill, and be certified by a GP as unable to work. Statutory sick pay covers both full-time and part-time employees.

                               

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