What pay includes

Lump sum payments

Payments on retirement or leaving work

You might choose to pay a lump sum payment to an employee who is retiring or leaving work. This payment should be treated as pay if it is more than either:

  • the basic exemption and increased exemption (if due)
  • Standard Capital Superannuation Benefit (SCSB).

Basic exemption

The basic exemption is €10,160 plus €765 for each complete year your employee has worked for you.

The following items can be counted towards a full years work:

  • time worked before and after a career break
  • period of job-sharing or part-time work
  • for group companies, all work carried out in Ireland.

If your employee has taken a career break this cannot be counted.

Increased exemption

Your employee may claim an increased exemption, up to €10,000, providing they have not received a lump sum payment in the previous ten years.

Your employee may be due to receive a lump sum payment from their pension scheme. You must deduct this lump sum from the €10,000.

If this payment is not due yet, then you deduct the current value of it.

Your employee might have agreed with their pension provider that they will never receive a lump sum payment. They must inform you of this agreement in order to receive the increased exemption.

Standard Capital Superannuation Benefit (SCSB)

SCSB is an additional relief your employee may be entitled to. It benefits employees with high earnings and long service. SCSB is calculated at 1/15 of the average annual pay for the last 36 months in employment. This is multiplied by the number of full years of service. Any tax free lump sums received are subtracted from this benefit.

Payment in lieu of notice

A payment in lieu of notice should be treated as pay if it is part of your employee's contract. This payment cannot benefit from the basic exemption.

Payments to compensate for change in work practices

Your employee may be entitled to a lump sum payment as compensation for changing duties. Examples of these changes are:

  • a change in work practices with the introduction of new technology
  • a transfer of place of employment to a new location.

These payments are included as pay, and taxed in the normal way.

Your employee can claim tax relief on this payment at the end of the year.

Foreign sourced employment income

If your employee has income from a foreign employment and works in Ireland, you must tax this in the normal way.

Income relating to work outside Ireland may be taxable, but this is not your responsibility.

Next: Salary sacrifice arrangements