Small Benefit Exemption: A tax efficient method of rewarding your employees this Christmas

As we approach the festive season, the topic of Christmas bonuses for employees is a common theme of conversation for SMEs across the country.

If you are an employer who is thinking of rewarding your employees with a bonus this Christmas, then it is important to be aware of the Small Benefit Exemption and how it works.

Under this concession an employer can make a one-off non-cash gift/bonus e.g. gift vouchers, to each employee up to a value of €500 completely tax free.

What this means is that the employee is not subject to PAYE, USC and PRSI on the bonus and the employer is not liable for Employers PRSI.

The bonus must not be in the form of cash and only one bonus per year is covered.

If you reward an employee with several bonuses throughout the year only the first one is covered even if the sum total of the bonuses paid is less than or equal to €500.

Example 1:

Michael has one employee who he gave two lots of gift vouchers to throughout the year as a bonus. He gave him €250 in June and €250 in December.

Only the first bonus of €250 is covered by the exemption. The second bonus is fully taxable and Michael must operate payroll taxes on this payment.

Also, if the bonus is in excess of €500 then the full amount of the bonus is liable to tax and not just the balance over €500.

Example 2:

Michael gave his employee gift vouchers worth €525 in December as a Christmas bonus. The full €525 is liable to tax and Michael must operate payroll taxes on this payment.

For more information, please contact your nearest TaxAssist Accountant.

Date published 22 Nov 2017

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.