What’s coming down the track for Irish employers?

Paul Byrne, director of Thesaurus Software offers some advice to Irish employers in the areas of RTI and auto entolment in relation to successfully implementing payroll software.

There have been two important business developments in the UK in payroll software in recent years both of which we can expect to see copied in Ireland, in some shape or form. The first of these is real time information (RTI).

What would RTI mean to Irish employers?

At present Revenue only receives detailed information of employees’ earnings and tax at the end of a tax year when an employer submits the P35, and sometimes mid-year when a P45 is submitted. Under RTI, Revenue would receive this information every time an employee is paid.

The advantage of RTI to Revenue is they would have up to date information on which to base the current tax credit cert of an individual. This helps ensure that there are no over or underpayments of tax at the year end, with a corresponding reduction in administration, and provides greater certainty for future budget planning. It is also beneficial to the individual employee as they can be reasonably certain that their tax affairs are up-to-date.

RTI is particularly relevant to modern day work patterns where employees may have multiple employments and now change employment more frequently than in previous affluent times. RTI, which requires online submission of returns, is made possible by virtue of the widespread availability of broadband and automated payroll programs creating simple to use interface between the employer and Revenue.

RTI commenced in the UK on April 6th 2013, following an initial pilot programme. Despite initial apprehension by employers and payroll bureaus, the experience to date has more or less been ‘what was all the fuss about?’ HMRC were largely responsible for how smoothly RTI rolled out and was implemented by employers.  Indeed HMRC should be commended for the investment of time and resources into numerous consultations, workshops, seminars, and webinars etc. well in advance of RTI implementation. HMRC actively worked closely with payroll software providers to ensure a pain free process for employers.

With such a successful reform to the PAYE system in UK what obstacles hinder the adoption of RTI in Ireland? One may be a lack of allocated funds.  Putting the systems in place to handle RTI is a mammoth task and Revenue is starved of development funds. The one huge advantage they have is that they can learn from the HMRC model along with a wealth of experience available from Irish payroll software providers who are also UK payroll software providers.

Auto enrolment

The second major development in the UK is Auto enrolment.

Thankfully, we are living longer! This, however, presents a huge challenge for any country’s retirement strategy.

Back in 1950, there were 7.2 people aged 20–64 for every person of 65 or over in the OECD countries. This is projected to reduce to 1.8 by 2050. The math is stark. To fund a state pension which pays modern day equivalents to people retiring at 65 will soon become an impossible task. Apart from increasing the already huge tax burden to pay for pensions, there are really only two ways of addressing the problem. One, the retirement age needs to increase and, two, people will need to have private pensions or other incomes to supplement their State pension.

Auto enrolment addresses the latter. It imposes a legal obligation on employers to enrol their employees in pension schemes and to contribute to these pensions. A deduction is made from the employee’s pay plus the employer contributes as well. Auto enrolment began in the UK for very large employers in 2012 and is being rolled out to include all employers by 2017. The combined minimum deduction and contribution of 2% is designed to ease employees and employers into the concept but this combined level rises to 8% by 2018.

It should be noted that employee participation is optional. The employer must enrol them but they may subsequently opt out. Therefore, employees who feel that they are otherwise covered (e.g. through rental property and/or other investments) do not have to partake in auto enrolment.

The various rules surrounding auto enrolment and the structures that need to be put in place are numerous and represent a major undertaking for government, employers and pension companies.

Auto enrolment (or similar) is an absolute necessity and it is somewhat surprising that Irish plans in this regard are not more advanced.