11 Common Payroll Mistakes Irish Employers Make and How to Fix Them

Updated for Budget 2027
Budget 2027 was announced on 6 October 2026. Most of its payroll changes take effect from 1 January 2027 and become final once the Finance Bill and Social Welfare Bill are enacted. Rates in force today are shown first; 2027 figures are clearly labelled. We will update this page within 48 hours of any change.

Running payroll in Ireland is more complex than most employers expect when they take on their first employee. PAYE, PRSI and USC, Enhanced Reporting Requirements (ERR), and since January 2026 automatic enrolment into My Future Fund all have to be right on every pay run. Get one wrong and the result can be interest, penalties, backdated liabilities, or staff who have been paying the wrong tax for months.

Most payroll errors don’t announce themselves. They sit quietly in the records until a Revenue compliance check, a payroll review or an employee query surfaces them, and by then they cost more to unpick than they would have at source.

This guide covers the eleven mistakes we see most often, why they happen, and how to put them right. With Budget 2027 changing tax credits, USC bands, the employer PRSI threshold and ERR deadlines from January, it is also a good moment to check your payroll is ready for the new year.

Budget 2027 at a glance: what changes for payroll

The figures below are as announced on 6 October 2026. Columns marked “2027” apply from 1 January 2027 unless stated, subject to legislation.

Item	2026 (now)	2027 (announced)
Personal tax credit (single)	€2,000	€2,125
Employee (PAYE) tax credit	€2,000	€2,125
Earned income credit	€2,000	€2,125
Standard rate band, single	€44,000	€46,500
Standard rate band, married one earner	€53,000	€55,500
Standard rate band, married two earners (max.)	€88,000	€93,000
USC 2% band ceiling	€28,700	€30,300
Employer PRSI: weekly pay above which the higher rate applies	€552	€600
Class A PRSI rates	Employee 4.35%; employer 9.00% / 9.15% / 11.40% (from 1 Oct 2026)	A further 0.15-point increase due 1 Oct 2027 (employee 4.50%; employer higher rate 11.55%)
National minimum wage (aged 20+)	€14.15 an hour	€14.94 an hour
ERR reporting deadline	On or before the payment date	Optional: by the 14th of the following month
Car and van BIK: OMV reduction	€10,000	€5,000 (already legislated)
Small Benefit Exemption	€1,500, up to 5 benefits	No change announced
My Future Fund contribution rates	1.5% employee / 1.5% employer	No change (rates fixed for 2026–2028)

1. Using the wrong PRSI sub-class

Pay Related Social Insurance (PRSI) is where errors are most common and most costly. The class and sub-class decide what the employee pays and what the employer pays, and getting them wrong can mean under-paying social insurance and leaving employees with gaps in their entitlements.

Most employees are Class A. Within Class A there are four sub-classes, decided by weekly reckonable earnings in each pay period, not annual salary. A0 is the lowest band, not a high-earner classification, as is sometimes assumed.

Class A rates in force from 1 October 2026

Until 30 September 2026 the employee rate was 4.20% and the employer rates were 9.00% and 11.25%. Note that the employer rate on A0 earnings stayed at 9.00% on 1 October; only AX and AL moved to 9.15%. Applying 9.15% across every lower-band employee is one of the most common errors we see this autumn, and it appears in some third-party commentary too.

Employees earning between €352.01 and €424 a week get a tapered PRSI credit of up to €12 a week, which is why the AX sub-class exists. For fortnightly, monthly or other pay frequencies, the bands are converted to the equivalent for that pay period. Payroll software does this automatically, but only if the pay frequency is set up correctly.

Class J and other classes

Where an employee’s reckonable pay is less than €38 a week from all employments, the correct class is Class J, not Class A at a nil rate. Class J also applies in some other situations regardless of earnings, so check the employee’s circumstances rather than defaulting to Class A.

What changes in 2027

• From 1 January 2027 (announced): the weekly pay at which the higher employer rate kicks in rises from €552 to €600. Employees earning between €552.01 and €600 a week will move from the higher employer rate to the lower one.
• From 1 October 2027: a further 0.15-point increase, taking the employee rate to 4.50% and the employer higher rate to 11.55%, under the PRSI roadmap already set out in legislation.

Full rate tables: gov.ie – PRSI Class A rates and gov.ie – PRSI Class J rates. More in our PRSI classes guide.

2. Getting director PRSI wrong

Common misconception

Not every company director is PRSI Class S. Putting a director in the wrong class is a significant compliance risk in both directions.

Two separate frameworks apply to directors, and they use different thresholds.

• Income tax (Revenue): a proprietary director is one who directly or indirectly controls more than 15% of the ordinary share capital. This affects Form 11 filing and tax credits (see mistake 9).
• PRSI (Department of Social Protection): a working director who owns or controls 50% or more of the company is treated as self-employed and pays Class S, under section 16 of the Social Welfare and Pensions (Miscellaneous Provisions) Act 2013. Below 50%, there is no automatic answer: the class depends on whether a genuine contract of service exists, and it may be Class A.

Where a director is Class S and paid through payroll, Class S PRSI (4.35% from 1 October 2026) is deducted through PAYE like any other deduction. There is no employer PRSI on Class S earnings, so a director wrongly set up as Class A costs the company employer PRSI it doesn’t owe, while a director wrongly set up as Class S may miss out on social welfare cover that Class A provides and Class S does not.

Where a director’s status is unclear, the Department of Social Protection’s Scope Section can make a formal decision on insurability. Take professional advice before adopting a position.

3. Running payroll without the latest RPN

A Revenue Payroll Notification (RPN) tells you an employee’s tax credits, standard rate cut-off point and USC position. Revenue’s rule is that you must use the most recent RPN for every payment. Credits change during the year (a new job, a marriage, a rent credit claim), so working from a stale RPN means every pay run after the change is wrong.

New employees and emergency tax

For a new employee, you register the employment through your payroll software and request an RPN. If the employee is starting their first job in Ireland, they need to add the job in Revenue myAccount (“Jobs and Pensions”) before an RPN can issue. If Revenue cannot provide an RPN, you must operate emergency tax. Don’t improvise a rate.

When an RPN arrives, apply it on the next pay run. If it is a cumulative RPN, any over-deducted tax and USC is refunded through payroll on that pay day; no amended submission is needed, because the original submission was correct at the time. If it is a Week 1 (non-cumulative) RPN, you cannot refund through payroll and the employee claims any overpayment from Revenue. Amended submissions are only needed where the original submission itself was wrong.

The January trap

Revenue’s rule is that payments made on or after 1 January 2027 must use the employee’s 2027 RPN, even if the pay relates to work done in 2026. If your last December pay run slips into January, it is a 2027 payment and must use 2027 credits and bands.

Guidance: Revenue – emergency tax rules · Revenue – income earned in one year, paid in the next.

4. Treating employees as self-employed contractors

Employment status is one of the most consequential decisions in Irish payroll. Treating someone as a contractor when they are in substance an employee can leave the business liable for PAYE, PRSI and USC that should have been deducted, plus employment-rights claims at the Workplace Relations Commission.

The test changed in 2023. In the Karshan (Domino’s Pizza) judgment, the Supreme Court set out a five-question framework, and the joint Code of Practice on Determining Employment Status was revised in late 2024 to reflect it. In summary:

1. Does the arrangement involve the exchange of pay for work?
2. Is the worker providing their own services, rather than being free to send a substitute?
3. Does the business have enough control over the work?
4. If the answer to all three is yes, do the terms of the arrangement, read in light of all the circumstances, point to employment or to a business run on the worker’s own account?
5. Is there anything in the specific legislation involved that changes the answer?

Calling someone a “contractor” in a written agreement does not settle it. Revenue, the Department of Social Protection and the WRC all look at how the relationship actually works.

Guidance: Revenue – determining employment status · Code of Practice on Determining Employment Status (2024). We run payroll on the status you decide; where status is genuinely unclear, take legal or tax advice, or ask the Scope Section for a decision.

5. Ignoring or under-reporting benefit in kind

Benefit in kind (BIK) is one of the most under-reported areas of Irish payroll. Company cars, medical insurance and gym memberships all have a taxable value. That value is treated as notional pay: it is added to the employee’s pay for income tax, USC and PRSI purposes in the pay period the benefit is provided, even though no cash changes hands.

Where employers go wrong

• Medical insurance. The BIK is the gross premium. The employer pays the insurer the premium net of tax relief at source (TRS) and pays the relief amount to Revenue; the employee then gets the tax relief on the gross premium, up to the limits. Treating the net premium as the BIK value is a common error.
• Company cars and vans. BIK is based on original market value (OMV) and business mileage. The OMV reduction is tapering: €10,000 in 2026, €5,000 in 2027 and €2,500 in 2028, under Finance Act 2025, so the BIK on the same car will rise in January. Electric vehicles, partial-year use and employee contributions each need specific treatment.
• Vouchers and gifts above the Small Benefit Exemption (see below) treated as tax-free.

“Grossing up” applies only where the employer agrees to bear the employee’s tax on a benefit. In a normal arrangement, the benefit is added as notional pay and taxed through payroll.

Guidance: Revenue – medical insurance paid for employees. More in our BIK guide.

6. Getting the Small Benefit Exemption wrong

The Small Benefit Exemption was increased from 1 January 2025, and Budget 2027 announced no change. The rules:

• Up to five non-cash benefits per employee per year.
• Combined value of no more than €1,500 in the year.
• Not cash, and not anything that can be turned into cash. A card that can be used at an ATM does not qualify.
• Not part of a salary sacrifice. A voucher given in place of salary does not qualify.

Two rules catch employers out. If a single benefit is worth more than €1,500, the full value of that benefit is taxable, not just the excess. And only the first five benefits in a year can qualify; a sixth is taxable through payroll even if the total is under €1,500.

Every small benefit must be reported through ERR (see mistake 7). Guidance: Revenue – Small Benefit Exemption.

7. Missing or late ERR submissions

Enhanced Reporting Requirements (ERR) have applied to all employers since 1 January 2024. They require you to report three types of tax-free payment to Revenue, currently on or before the date you make the payment or provide the benefit:

• travel and subsistence payments (vouched and unvouched);
• Small Benefit Exemption items; and
• the remote working daily allowance (up to €3.20 a day tax-free).

ERR gives Revenue a near real-time view of tax-free payments, which it can compare with other information it holds. Missing, late or inconsistent reports are exactly the kind of gap that can prompt a compliance intervention, and failure to meet PAYE reporting obligations can attract penalties.

Budget 2027: a new optional deadline

Budget 2027 announced that from 1 January 2027 employers will be able to choose to report these payments by the 14th of the month after the month the payment or benefit was provided, instead of on or before the payment date. The details will be in the Finance Bill. Until it is enacted and Revenue updates its guidance, the on-or-before rule still applies, and it remains the rule for all 2026 payments.

Guidance: Revenue – Enhanced Reporting Requirements. More in our ERR guide.

8. Getting USC wrong

USC errors usually come from out-of-date bands in payroll software, or from applying the reduced rate to people who don’t qualify (or failing to apply it to those who do). In practice, the RPN carries each employee’s USC position, which is another reason to always use the latest one.

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Anyone whose total income is €13,000 or less pays no USC. Once income exceeds €13,000, USC is due on all of it.

The reduced rate

A person qualifies for reduced USC if their total income is €60,000 or less and they are either aged 70 or over or hold a full medical card. Either condition is enough on its own; a GP visit card does not count. The reduced rates are 0.5% on the first €12,012 and 2% on the balance. The medical-card element is currently legislated to the end of 2027.

Guidance: Revenue – USC reduced rates.

9. Getting director tax obligations wrong at year-end

Proprietary directors (more than 15%) are chargeable persons and must file a Form 11 income tax return, even if all their salary was taxed through PAYE. This is regularly missed in owner-managed companies.

Directors with 15% or less are generally not required to file, provided all their income (salary, fees, benefits and distributions) is fully taxed under PAYE and they are not chargeable for any other reason. Directors of companies that have been dormant for the three years ending 31 December in the tax year (no trade, business or other activity, including making investments; no more than €130 in cash; and no charges on income paid) are also excluded. If any of this is uncertain, check with your tax adviser.

Proprietary directors are also not entitled to the Employee Tax Credit on income from their own company. The Earned Income Credit may apply instead, with the two combined capped at €2,000 for 2026 (€2,125 for 2027, as announced). Check the director’s RPN reflects this.

Before year-end, confirm that director salary, fees and BIK have been reported in full, and that the correct PRSI class (see mistake 2) has been applied all year. Guidance: Revenue – directors.

10. Not getting My Future Fund right

My Future Fund, Ireland’s auto-enrolment pension scheme, started on 1 January 2026. NAERSA (the National Automatic Enrolment Retirement Savings Authority) uses Revenue payroll data to identify eligible employees and sends the employer an Automatic Enrolment Payroll Notification (AEPN). The employer deducts and adds contributions through payroll as the AEPN instructs and pays them to NAERSA at the same time as wages are paid.

Employees are generally eligible if they are aged 23 to 60, earn €20,000 or more a year across all their employments, and are not in a pension scheme through that employment’s payroll. Contributions are calculated on gross pay up to €80,000 a year.

Budget 2027 made no changes to the scheme. The mistakes we see are practical: AEPNs not applied promptly, employer contributions not added, or contributions not paid over on time. Each missed pay run makes the catch-up bigger. NAERSA, not the employer or payroll provider, decides who is eligible, so don’t enrol or exclude people on your own judgement.

Guidance: myfuturefund.ie · gov.ie – auto-enrolment for employers. More in our auto-enrolment guide.

11. Treating year-end as a low-priority task

Since PAYE Modernisation in January 2019, the P30, P35, P45, P46 and P60 no longer exist. Payroll is reported to Revenue in real time on or before each pay date, Revenue issues a monthly statement, and payment is due by the 14th of the following month (the 23rd if you file and pay through ROS). Employees see their annual figures in an Employment Detail Summary in myAccount.

Year-end is now about accuracy, not filing. What Revenue holds is what your employees see, so errors left in December carry into their tax affairs.

Before your last 2026 pay run

• Correct any errors in 2026 payroll submissions.
• Check BIK and other notional pay has been included in every pay period.
• Reconcile ERR reports for travel and subsistence, small benefits and remote working.
• Reconcile payroll records with Revenue’s monthly statements.
• Confirm My Future Fund contributions have been applied and paid for every employee with an AEPN.

Before your first 2027 pay run

• Get 2027 RPNs for every employee, and use them for any payment made on or after 1 January 2027, even for 2026 work.
• Check your software has the 2027 tax credits, rate bands and USC bands (see the table above).
• Update the employer PRSI threshold from €552 to €600, once legislated.
• Raise pay to at least €14.94 an hour for employees on the minimum wage aged 20 and over, and check youth rates.
• Update company car and van BIK for the reduced OMV relief (€5,000).
• Decide whether you will use the new ERR deadline (by the 14th of the following month) once Revenue confirms it, and set up processes to match.

More in our payroll year-end guide.

What if you’ve already made one of these mistakes?

Correct it as soon as you find it. The right route depends on what went wrong, how big it is and whether Revenue has already been in touch.

Routine corrections

Many errors, such as a stale RPN, a wrong sub-class for a few weeks or a late ERR report, are fixed by correcting the payroll submissions through your software or ROS and paying any extra tax due. Late-paid PAYE, PRSI and USC carries interest at 0.0274% a day.

Self-correction and qualifying disclosures

Revenue’s Code of Practice for Revenue Compliance Interventions (May 2022) sets out how larger or repeated errors are dealt with.

• Self-correction: an employer can usually self-correct, paying the tax and interest without a penalty, if it does so before the due date of its income tax or corporation tax return for the period (or 31 October of the following year where there is no such return), and before Revenue notifies a Level 2 intervention.
• Unprompted qualifying disclosure: made before Revenue notifies a Level 2 intervention (risk review or audit). It remains available during Level 1 contact such as a self-review request or profile interview, and gets the most favourable treatment on penalties.
• Prompted qualifying disclosure: possible after notice of a Level 2 intervention and before the review or audit begins, but with smaller penalty reductions.
• Level 3 (investigation): once notified, no qualifying disclosure is possible.

If the liability is material or you’re not sure which route applies, take advice before contacting Revenue. A payroll review that checks submissions, PRSI classes, BIK and ERR against Revenue’s records is the quickest way to find out what needs fixing. Our historical payroll clean-up service covers this.

Frequently asked questions