October 1st marks the first budget delivered by Minister Jack Chambers; a budget with implications for payroll professionals for the year ahead. The Irish Budget 2025 brings significant updates that will impact individuals and businesses alike, especially in areas of taxation, wages, and social protection across 2025. The main elements of this budget had of course been debated before today’s announcement, with few surprises truly shocking the experts.
After a challenging few years for the country dealing with a pandemic and surging inflation, Minister Chambers has said that inflationary pressures have "eased considerably" over the past year, which is reflected in this budget. In terms of employment, there was good news. As Minister Chambers said, “Almost three quarters of our working-age population are now in employment – with participation amongst female workers at its highest level ever.” This is a positive development, which will surely be accounted for in upcoming Gender Pay Gap reporting over 2025.
With an increase in the tax threshold for higher earners, reductions in the Universal Social Charge (USC), and a rise in the minimum wage, the changes reflect efforts to ease the cost of living. Employers and payroll providers will need to adjust to these updates, ensuring compliance and smooth integration into payroll systems.
But how will the changes announced in this budget impact payroll professionals in the year ahead? We’ve put together a short outline of some of the highlights of the budget and how they will impact payroll in 2025.
The adjustment made to the USC (Universal Social Charge) was something discussed at length in advance of this budget, and as predicted, this budget sees the USC rate reduced from 4% to 3%.
The USC rate reduction will primarily benefit employees on middle incomes, lowering their overall tax burden. This adjustment aligns with the government's aim to ease the cost of living for many workers.
Similarly, the increase in the Standard Rate Cut-Off Point from €42,000 to €44,000 means individuals can now earn more before they are subject to the higher 40% income tax rate.
Budget 2025 also disclosed an increase in the personal, employee, and earned income tax credits of €125, which will directly impact employees' take-home pay, reducing their overall tax liability and increasing net pay.
Payroll systems will need to be updated to reflect these changes accurately in tax calculations, ensuring compliance and correct employee deductions. Additionally, increases in specific tax credits—such as the Home Carer Credit, Single Child Carer Credit, Incapacitated Child Credit, and Blind Person Credit—mean that employers must adjust payroll systems for eligible employees. By ensuring these tax credits are correctly applied, payroll professionals can help maximise the tax relief and ensure smooth compliance with the new regulations.
In Budget 2025, the national minimum wage will increase by €0.80 per hour, rising from €12.70 to €13.50 per hour starting January 1, 2025. This change aims to support low-income workers and help offset inflationary pressures.
For payroll systems, this means updating salary calculations to ensure compliance with the new minimum wage law. Employers need to ensure that the increased hourly rate is reflected in employees' pay, especially for those working part-time or on variable contracts, to avoid legal or regulatory issues.
"This means that a full-time worker on the minimum wage will see an increase in their net take home pay of approximately €1,424 on an annual basis. As a result of the cumulative increases to the main tax credits, a single person earning €20,000 or less in 2025 will now be outside of the income tax net."
- Minister Jack Chambers, Budget 2025
This increase to the minimum wage is in line with the trajectory set in place to achieve a National Living Wage by 2026. This will then replace the minimum wage. The National Living Wage is set at 60% of the median wage in Ireland against the given year.
Learn more: National Living Wage Guidelines | SD Worx
Budget 2025, the Benefit-in-Kind (BIK) regime for electric vehicles (EVs) will continue to provide significant tax relief for employees. The temporary universal relief of €10,000 on the Original Market Value (OMV) of EVs is being extended for another year, meaning employees can benefit from reduced BIK rates on company cars. This includes an overall BIK relief of €45,000 for electric vehicles in 2025, which comprises both the €35,000 specific relief for electric vehicles and the additional €10,000 relief.
Additionally, the 4,000 km reduction in the highest mileage band will be extended until 31 December 2025. A BIK exemption is being introduced in respect of the costs incurred by an employer with the installation of a charge point for the charging of vehicles at the home of a director or employee.
See also: Employee Benefits in Ireland: From SME to Enterprise | SD Worx
The extended BIK relief for EVs will significantly reduce the tax burden for employees with company cars. Employees will see lower taxable values assigned to their company-provided EVs, translating to reduced monthly tax deductions from their salaries. This not only encourages the use of greener vehicles but also enhances the financial attractiveness of company car schemes for employees.
This is another excellent element of Employee Rewards which is worth considering when it comes to talent acquisition and retention. This focus on employee benefits goes on to be reflected in the Small Benefit Exemption, too.
The tax-free small benefit exemption limit increases from €1,000 to €1,500 annually. Employers can now offer up to five non-cash benefits tax-free in a year. This flexibility can be used for performance rewards or life events.
The Small Benefit Exemption changes in Budget 2025 will require payroll systems to update how they track and report non-cash benefits. With the limit increasing to €1,500 and the allowance for up to five tax-free benefits, payroll departments must ensure accur ate records for compliance. This may involve adjusting payroll software to accommodate these updates and ensuring that the benefits are correctly accounted for in tax deductions. As a result, employees will receive greater value without incurring additional tax liabilities.
Auto-enrolment is a new retirement savings scheme that is due to commence from 30th September 2025. Employees who:
do not have a pension scheme
earn more than €20,000 per year and
are aged between 23 and 60
will be automatically enrolled into the new system. For every €3 that an employee puts in, the employer will contribute €3, which will be supplemented by an additional €1 provided by the State, subject to an income limit of €80,000.
The scheme will operate on a defined contribution basis where the level of contributions will be defined, but the value of the employee’s entitlement will not be known until retirement.
Budget 2025 brings a range of updates that will significantly affect payroll professionals across Ireland. Employers and payroll providers must now prepare to implement these measures effectively, ensuring compliance and seamless integration into payroll systems. Staying informed and agile in response to these developments will be crucial for payroll professionals as they navigate the year ahead.
Disclaimer: The information provided is based on the details released in Ireland's Budget 2025. The policies and changes mentioned are as announced by the Irish government and may be subject to further adjustments or updates. For the most current and comprehensive information, please refer to official government sources or publications.
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