How hiring long-term jobless can pay off for employers
Published 13/10/2011 | 05:00
MOST employers don't know that there are tax incentives for recruiting people who have been out of work for at least 12 months.
This is well worth exploring because there are really good people among the 442,200 people on the live register and looking for work. The reason I highlight this point is twofold:
1. Neither the Revenue Commissioners nor the employer representative groups market the financial incentives to hiring employers or those employers who might hire if they were aware of this incentive.
2. The financial incentive can, depending on the wage level of the employee involved, go a good way toward paying the wages of the staff member in question.
The first element of the incentive applies to prospective employees who have been unemployed for at least 12 consecutive months immediately before the start of the employment and who have been in receipt of certain social welfare benefits.
Under this scheme, an individual who qualifies can avail of additional tax deductions (on top of their tax credits) in each of the first three years of the employment.
Strict conditions apply to the employer in the context of what qualifies as a "qualifying employment" including:
1. A limit on the portion of remuneration that can be commission based.
2. The individual previously holding the position cannot have been unfairly dismissed.
3. The employer cannot have made any member of staff "redundant" within the 26 weeks prior to the commencement of the qualifying employee.
4. The employment must be capable of lasting 12 months at least and the employment must consist of at least 30 hours per week.
The second element of the financial incentive for hiring long-term unemployed individuals benefits the employer through double deductions in computing taxable income for both the wage element plus the employer PRSI element of the costs of hiring a qualifying employee.
This lasts for three years.
Note that double deductions could be worth up to 55pc for employers that are taxable under income tax rather than corporation tax and so the actual cost of hiring the individual is shared between the State and the employer.
In fact, in the example below it's actually the Government that is paying the wage of the employee in question.
Here's an example. A qualifying employee was hired by an individual (or business, eg a partnership operating under income tax rules) and the wage was €40,000 plus employer PRSI (€4,300).
The employer would receive a tax deduction for €88,600, subject to changes being mooted by the Government on employer PRSI plus the current PRSI free scheme being administered by the Department of Social Welfare.
If the employer was subject to tax at the top rate (around 55pc) then the value of the deduction of €88,600 for hiring an individual on a salary of say €40,000 would be €48,730 (in contrast to €48,300 where the employer availed of the PRSI exemption under the Dept of Social Welfare Scheme) meaning that the Exchequer is actually bearing the full cost of the employee's wage of €40,000.
If the wage of the employee is €30,000, then the deduction in computing taxable income for the employer would be €66,450 with the tax saving being approximately €36,547 versus €36,225 by availing of the double deduction (excluding the PRSI) and separately the employer's PRSI exemption.
So now this incentive can come into its own and people can be employed by employers at no cost to the employer where the above is availed of.
The costs being borne by the State under this scheme may very well be less than having to recapitalise the banks for any mortgages that may go unpaid by such individuals if they were not to get employment so there is merit in employers using this scheme to recruit new employees.
Mark McCutcheon is a member of the Irish Taxation Institute. He can be contacted by email on firstname.lastname@example.org or on 087-6663893