Minister's Announcement re PRSI on Share Based Remuneration

On 18 March 2011 the new Minister for Finance announced that charges to PRSI on share awards (introduced in the recent Budget and Finance Act) will not apply where there is a written agreement entered into before 1 January 2011. The text of the Announcement is set out below.

Text of Minister's Announcement

"A charge to employer and employee PRSI on share based remuneration (including share options) was announced in the National Recovery Plan 2011-2014. The legislation introducing these charges was implemented in Finance Act 2011, as well as via Regulations made by the Department of Social Protection.

The Minister for Finance has now clarified that the charge to PRSI (both employer and employee) will not apply where the share based remuneration was the subject of a written agreement, entered into between the employer and the employee before 1 January 2011. The PRSI charge will however, apply to share based remuneration where this is subject to agreements entered into on or after 1 January 2011.

The legislative changes required to underpin this clarification will be made in the next Social Welfare Bill."

Commentary

The Minister's Announcement is good news for employers and employees who would otherwise be faced with charges to PRSI that were not contemplated when awards were granted.

We only have the text of the Announcement to go by at present. We will obviously need to consider the relevant legislation when it is introduced, but it would appear that options and share awards will not suffer PRSI, provided there was a written agreement between the employer and employee regarding the award in place pre 1 January 2011.

The Announcement does not refer to USC. Accordingly, it appears that USC will still apply to all awards that are exercised or vest post 1 January 2011. Equally, there are no changes regarding the new PAYE payment provisions, applicable from 1 January 2011.

The Announcement makes no reference to recouping PRSI, but it would appear likely that PRSI previously withheld may be recouped through adjustments to payroll in the current year.

Companies will need to revise their procedures for collection and payment of PRSI following exercise of share options and vesting of share awards. Awards made pre January 2011 will need to be treated differently to awards made after that date. Employee communications and tax summaries will also need to be updated.