Employers and employees are likely to benefit from a number of changes and initiatives announced by the Minister for Finance and Public Expenditure, Paschal Donohoe (the "Minister"), on Tuesday.
Key Employee Engagement Programme (KEEP)
Following a public consultation and consultation with the European Commission to ensure State aid rules were complied with, the Minister has proposed a new share-based remuneration incentive which should facilitate the use of share-based remuneration by unquoted small and medium enterprises (SMEs) to attract and retain key employees. Gains on the exercise of KEEP share options will be liable to capital gains tax (CGT) (currently 33%) rather than income tax, USC and PRSI (currently 52%+).
It is expected that the programme will apply to qualifying share options granted between 1 January 2018 and 31 December 2023. Full details of the new incentive will be included in the Finance Bill to be published on 19 October 2017 and should be adopted at the beginning of 2018.
A welcome initiative for employers, the Minister highlighted the effectiveness of share-based remuneration "in increasing competitiveness and helping companies to attract and retain staff in a competitive labour market."
Early Childhood Care and Education (ECCE) Scheme
Another positive development for employee retention is the expansion of the ECCE scheme. This will provide parents of children of pre-school age with an entitlement to two free years of childcare, consisting of 3 hours of a day, 5 days a week, over the school year.
By alleviating the childcare burden, working parents will be more likely to remain in, or return to, the workplace.
An interesting green initiative that may prove beneficial is the 0% rate of benefit-in-kind (BIK) for electric vehicles for employees. This is expected to commence in 2018 for a trial period of one year. Electricity used in the workplace for charging vehicles will also be exempt from BIK.
Changes in tax could also benefit employers as well as employees.
The Budget introduced changes to income tax, increasing the standard rate cut off-point by €750.
Certain USC rates have been reduced. The 2.5% rate will reduce to 2% and will apply to income between €12,013 and €19,372. The 5% rate will reduce to 4.75% and will apply to income between €19,373 and €70,044.
Addressing the issue of the amalgamation of PRSI and USC, the Minister stated that a working group would be established to commence the planning process.
National Training Fund (NTF) Levy
The increase in the NTF Levy payable by employers in respect of reckonable earnings of employees in Class A and Class H employments will increase employer costs. The levy will increase from 0.7% to 0.8% in 2018, 0.9% in 2019 and 1% in 2020. The Minister did stress that employers would have a central role in determining NTF priorities.
Employer PAYE Compliance Project
In anticipation of PAYE modernisation, announced in last years' budget, a new project to ensure compliance by employers with their PAYE obligations was also announced by the Minister.