Salary Sacrifice, Bike to Work, Taxsaver Ticket

Introduction

The principle is that the employee gives up, or sacrifices, a portion of their pay and then receives something in return from their employer. This has a significant tax advantage for the employee because the salary they sacrifice is pre-tax (not taken from net pay) The employee pays less PAYE, PRSI and USC.

Revenue considers the remuneration sacrificed is to be considered as an application of the income earned by an employee rather than an expense incurred by that individual's employer. (The only exceptions are the two schemes provided for in Section 21 Finance Act 2008.)

http://www.revenue.ie/en/practitioner/tax-briefing/archive/70/salary-sacrifice.html

Quick Setup: Salary Sacrifice/Cycle to work/Taxsaver

All three of these schemes work in the same way. We will use 'Cycle to Work' scheme for these instructions, but the method is exactly the same for Salary Sacrifice and Taxsaver tickets.

Similar to the travel pass scheme, an employer and employee may enter into a salary sacrifice arrangement whereby the employee agrees to forego part of his or her salary to cover the costs associated with the purchase of the bicycle/safety equipment.

From the 2013 version onward, there is now an easier way to process Cycle to work, by using 'Quick Setup'. Cycle to Work should be deducted from the salary by means of salary sacrifice before any tax / PRSI calculations are made. The Revenue leaflet advises to treat the scheme as Benefit in Kind.

Steps

Select the employee in the Employee screen.
Click the 'Quick Setup' button at the top of the screen.
Tick the 'Cycle to Work Scheme' tick box in the Quick Setup screen.
Enter the amount of sacrifice (cycle to work) per pay period.
Click 'Ok', then click 'Update employee'

Enter Cycle to work directly into elements and deductions grids

To do a salary sacrifice in Payback, assuming a gross of €1000 and a salary sacrifice of €100, for version 9 or greater (with USC) please set up the elements and deductions like this:

Description	Amount	Type	Tax	PRSI	USC
Salary	900	Normal	Y	Y	Y
Salary Sacrifice	100	Bike to Work	N	N	N

Now we should make a deduction from the Salary of €100, because the employee is not getting this amount in their wage packet. When deducting this amount, the Tax, PRSI and USC should stay the same from step one. The deduction will look like this:

Description	Amount	Type	Tax	PRSI	USC
Salary Sacrifice	100	Bike to Work	Y	Y	Y

Please note: you should manually adjust the salary. Manually reduce the salary amount (eg €1000) by the salary sacrifice amount (€100).

How the calculations work

These examples show how the employee is being taxed and how Salary Sacrifice is generally beneficial for the employee

No Salary Sacrifice

Here is an example payslip for Mary Feeney. For this example, we have given her a salary of €3000 a week. This is so that the salary sacrifice tax change will be more apparent.

With Sacrifice

For this payslip we have kept everything exactly the same as the last payslip. Then we add €1000 Salary Sacrifice. Note how all the tax amounts now go down.

She has the benefit of whatever she is receiving for the €1000 sacrifice, but is not paying any PAYE, PRSI or USC on this €1000 benefit. The taxes have been calculated on the €2000, not on €3000 like the previous payslip.

Correcting Salary Sacrifice

If you have under paid Salary Sacrifice and the employee has over paid tax, increase the Salary Sacrifice amount to compensate.

If you have made an over payment of Salary Sacrifice, or paid salary sacrifice when you should have - the employee has paid not enough tax - and need to correct it, here is how.

Note that you may have to get instruction from Revenue to do this. This correction will work for employees paid on the cumulative basis.

Pay Period Two No Sacrifice

Here we have another of Mary's payslips. This is her second payment (week two). She has been paid €3000 for week one with no illness benefit and another €3000 for week two, again with no illness benefit.

Her Net pay is €1655.79 for this pay period (Total Net to Date is €3311.57)

Her Total Tax to date is €2076.54

Her Taxable Pay is €6000.00

Pay Period Two - Corrected

In this example Mary had €1000 set up for Salary Sacrifice in Pay Period one - like the 'With Salary Sacrifice' payslip above. However, now we find out that she should not have had the salary sacrifice in pay period one and it needs to be reversed in pay period two. The goal is to make the payslip the same as the 'Pay Period Two No Salary Sacrifice' Payslip above.

Her Net pay is €2135.79 for this pay period (Total Net to Date is €1175.79 + €2135.79 = €3311.57)

Her Total Tax to date is €2076.54

Her Taxable Pay is €6000.00

The total USC and PRSI also match the 'Pay Period Two No Sacrifice' Payslip. The €1000 Salary Sacrifice for Period one has been reversed.

How the correction was made

Here is how the element was set up to reverse the Benefit. Note that the Reverse amount should be the same as the total amount of incorrect Salary Sacrifice made in previous periods.

Element

Description	Amount	Type	Tax	PRSI	USC
Sac. Reverse	1000	Sacrifice	Y	Y	Y

Notes

If you use Quick Setup, a new sacrifice (cycle to work) element and deduction will be set up.
For salaried employees, the salary amount will automatically be reduced by the sacrifice amount.
For hourly paid employees, there is no automatic reduction. Their pay will still have to be manually adjusted.
Payback uses the taxable gross pay on payslips and reports
Salary sacrifice will reduce the Gross pay. This is correct operation. (If the old gross pay amount was to be used, then when you issue a P45, it will look like the employee has underpaid tax. The result will be that a new employer will over tax them.)
The employer should purchase the bike, otherwise the exemption will not apply.

The cycle to work scheme is described here: http://www.revenue.ie/en/practitioner/law/bik-exemption-for-bicycles.pdf

The Taxsaver scheme is described here: http://www.revenue.ie/en/spotlights/travel-pass.html

and http://www.taxsaver.ie/

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