Introduction
'Grossing up' means entering a Net amount to pay an employee rather than the usual Gross amount.
The Net amount is the amount the employee receives after all the deductions and taxes have been taken out. The Gross amount is their payment before taxes and deductions.
For example, an employee's Gross amount could be €2000. They then have to pay taxes on this so their Net amount is €2000 - taxes = €1245.62
Paying a Gross amount is the usual way Payroll works.
However, sometimes employers want to pay an employee a Net amount. This means that the Employee receive (for example) €2000 after all the taxes and deductions have been taken out. This is called 'Grossing Up' as the required Gross amount has be calculated to achieve the desired Net amount
Gross Up tick box
If you want the Salary to be the Net amount rather than the Gross amount, tick the 'Gross up (amount entered is after tax)' check box in the Pay Method tab in the Employee screen. This is the easiest way to gross up and will work as expected if there are no other elements (additions) to the employee's payment.
Gross Up Column
In the Elements grid in the Payroll screen is a G.Up column. You can see these if you click the 'Show' slider at the top right of the elements grid.
In the example opposite the employees salary is being grossed up. They should receive €2000 Net pay.
(If the 'Gross Up' check box was ticked in the Pay Method tab of the Employee screen, this column is automatically ticked for Salary)
Individual elements can be ticked to gross them up. We do not advise mixing grossed up and non-grossed up elements (see explanation below)
Payslip
The payslip opposite has a grossed up amount.
€2000 was entered in the Elements grid and the 'G.UP' column was ticked. This means that the Net pay was calculated at €2000 and the Gross pay was automatically increased to accommodate the taxes and deductions
Important Notes
We do not recommend Grossing up elements.
This is because employees can now more easily reassign tax credits between employments. PAYE Modernisation has made this problem worse as RPNs should be downloaded before processing payments. An employee can easily move their credits to another employment, substantially increasing their tax liability - which the employer is paying.
Mixing grossed up and non-grossed up elements.
This will often lead to counter-intuitive results. Usually, a grossed up payment is the only payment for a payroll.
For example:
An employee is usually paid €1000 and they are in the 20% band. Their tax is €200 (ignoring tax credits, USC and PRSI). So they get €800.
The employer gives them €2000 'grossed up' to be added onto their net pay. The employee now expects €2800 (which is an incorrect assumption). However, the total amount of pay is now in the 40% band so a portion of the €1000 now falls in the 40% band as well as some in the 20% band. This means as their pay is more, they are now getting less than €800 as their tax liability has gone up.
They are paying more tax on their €1000 because of the extra grossed up €2000
This is why grossing up only certain elements affects the elements that are not grossed up.