GUIDANCE NOTE ON PROVISION OF EMPLOYEE BENEFITS IN IRELAND.

A competitive employee benefit package is now considered vital for any employer in both attracting new staff, and retaining them as part of their overall remuneration package.

Although few of these benefits are mandatory, many employees continue to look for these work-related benefits, and a typical package is likely to include some/all of the following key components:

Life Assurance Cover

Life assurance cover is typically set up under a group ‘Death-In-Service’ plan, designed to pay out a multiple of salary as a tax-free lump to dependents on the death of an employee, whilst they remain in the employment of the company (usually up to age 65).

These schemes are set up under a Revenue-approved trust arrangement, and the premiums (paid for by the employer) are fully deductible for corporation tax purposes and there are no Benefit-In-Kind tax liabilities for the employee.

Once there are at least 5 members, insurers will generally offer nonmedical/guaranteed issue limits, below which medical underwriting is not required.

Long-Term Disability Cover

There is no statutory obligation for an employer to pay sick pay in Ireland, and the State Disability benefit becomes payable after a week. Nevertheless, many employers will effectively ‘self-insure’ any shortfall in short-term sick pay (for a period of up to 6 months) and have a long-term disability scheme in place which commences after a chosen deferred period.

This benefit is designed to pay out a partial replacement salary to an employee if they are unable to continue working due to any long-term illness, injury or disability. The benefit is paid following the deferred period for as long as the employee is unable to return to their normal occupation, up until age 65. Premiums paid by an employer under a Revenue-approved plan are fully deductible for corporation tax purposes and there are no Benefit-In-Kind tax liabilities on the employee.

Once there are at least 5 members, insurers will generally offer nonmedical/guaranteed issue limits, below which medical underwriting is not required.

Private Medical Insurance

The Irish health system operates across both the public and the private sectors, and just over half of the population have some sort of private medical insurance cover through one of the four PMI providers.

Although most people are entitled to ‘free’ hospital treatment in a public hospital (subject to the payment of a daily levy), many non-emergency procedures can involve lengthy waiting periods.

Most people also have to pay the full cost for GP services, prescriptions costs, optical and dental treatment.

Typical corporate PMI plans will therefore include an element of day-to-day ‘out-patient’ cover as well as private hospital ‘in-patient’ cover.

Employers will generally cover the full premium cost associated with their employees, and in many sectors, this cover is extended to include adult partners and dependent children as well.

Employer-paid medical insurance premiums are taxed as a chargeable Benefit-In-Kind on the part of the employee.

Up until recently, a person could enter the health insurance market at any age and be charged the same premium regardless of their age.

However, this system has changed recently and Lifetime Community Rating (LCR) has been introduced to encourage people to take out health insurance earlier in life and to control premium inflation across the health insurance market.

The introduction of Lifetime Community Rating (LCR) will see any new customers over the age of 34 pay an extra 2% loading on their health insurance premium, unless they have had PMI cover in place previously.

Retirement Provision

The State provides a subsistence pension (currently ~€12,000 p.a.) at retirement based on the accrual of sufficient social security contributions.

Eligibility for the State pension has been pushed out from age 65 to 68 in recent years.

Not surprisingly, additional workplace retirement provision is high on the list for many employees.

In the private sector, this is typically provided through Defined-Contribution occupational pension schemes.

Employer contributions to Revenue-approved schemes are fully deductible for corporation tax purposes, up to certain limits.

Contributions paid by employers to occupational pension schemes are not treated as a benefit-in-kind and can be paid in addition to employee contributions.

Generally, Employer/Employee contributions are set up on a matching basis up to a certain level, typically 5% of basic salary.

Employees can make further contributions to the scheme as Additional Voluntary Contributions up to certain age-related contribution limits.

The private provision of retirement benefits in Ireland operates on an EET taxation basis, i.e. contributions and investment build-up are exempt from taxes and benefit payments on retirement are subject to tax (although a portion of retirement benefits, up to €200,000, can be paid as a tax-free lump sum).

Where an employer does not provide employees with access to an occupational pension scheme, then the employer has a statutory obligation to provide these ‘excluded’ employees with access to a Personal Retirement Savings Account (PRSA) facility, following a period of no more than 6 months employment.

The employer must appoint a PRSA provider and provide employees with a payroll deduction facility so that any contributions they decide to make can be deducted from their gross salary – thereby providing tax relief at source on an employee contributions.

Although an employer can also contribute to a PRSA, there is no statutory obligation on the employer to do so, and any such contributions carry a Benefit-In-Kind liability which is chargeable on the employee.