Running payroll in Ireland means calculating three separate deductions for every employee, every pay period. Here's what each one is, how it works, and what you need to get right.
PAYE (Pay As You Earn)
PAYE is income tax deducted at source. Ireland uses a progressive tax system with two rates:
| Band | Rate | Single person | Married (one income) | Married (two incomes) | |------|------|--------------|---------------------|----------------------| | Standard | 20% | First €42,000 | First €51,000 | Up to €84,000 combined | | Higher | 40% | Balance | Balance | Balance |
Every employee has tax credits that reduce their PAYE liability. The main ones:
- Personal tax credit: €1,875
- Employee (PAYE) tax credit: €1,875
- Total for most PAYE workers: €3,750/year
PAYE is calculated cumulatively — meaning each pay period looks at the year-to-date position, not just the current period. This ensures employees aren't overtaxed if they start mid-year or have irregular earnings.
PRSI (Pay Related Social Insurance)
PRSI funds social welfare benefits (State pension, illness benefit, maternity benefit). Both the employer and employee pay:
| Who | Rate | Threshold | |-----|------|-----------| | Employee (Class A) | 4.2% | On all earnings above €352/week | | Employer | 11.25% | On earnings above €527/week | | Employer (lower band) | 9.00% | On earnings at or below €527/week |
Important: The employee rate changed to 4.2% from October 2025 onwards (previously 4%). If your payroll software hasn't been updated, you're calculating incorrectly.
There's also a PRSI credit of up to €12/week that reduces the employee contribution for lower earners.
USC (Universal Social Charge)
USC is a tax on gross income, calculated on a four-band progressive basis:
| Band | Rate | Income range | |------|------|-------------| | 1 | 0.5% | First €12,012 | | 2 | 2% | €12,013 – €25,760 | | 3 | 3% | €25,761 – €70,044 | | 4 | 8% | Balance above €70,044 |
USC exemption: If total income is €13,000 or less, no USC is payable. This threshold is checked annually.
Medical card holders and people over 70 with income under €60,000 get reduced rates.
How It All Fits Together
For an employee earning €45,000 per year:
| Deduction | Calculation | Annual amount | |-----------|------------|---------------| | PAYE | (€42,000 × 20%) + (€3,000 × 40%) – €3,750 credits | €5,850 | | Employee PRSI | €45,000 × 4.2% (minus credits) | ~€1,850 | | USC | €12,012 × 0.5% + €13,748 × 2% + €19,240 × 3% | ~€913 | | Total deductions | | ~€8,613 | | Net pay | | ~€36,387 |
The employer also pays ~€5,063 in employer PRSI on top of the gross salary.
Getting It Right
Payroll errors are expensive. Revenue penalties for incorrect PAYE/PRSI/USC can include interest charges and compliance interventions. The three most common mistakes:
1. Using outdated rates — tax bands and credits change annually. The October 2025 PRSI increase caught many businesses off guard. 2. Ignoring cumulative calculations — each pay period must account for year-to-date totals, not just the current period's earnings. 3. Misclassifying employees — contractors vs employees affects PRSI class and employer obligations.
How Knyt Handles Payroll
Knyt Payroll implements the Irish tax engine directly from Revenue specifications:
- PAYE calculated with correct cumulative basis and tax credits - PRSI at current rates with the October 2025 increase applied - USC across all four bands with exemption threshold checking - Supports weekly, fortnightly, and monthly pay frequencies - Revenue ROS integration for PSR, RPN, P45, and P60 submissions
You enter the gross pay. Knyt calculates everything else.