How SMEs can overcome payroll challenges

Paul O’Connell from Xeinadin on payroll pitfalls Irish employers face in the year ahead, how to avoid them, and navigate your business to financial health.

At the start of a new business year, SMEs across the country will be implementing their plans for the year ahead. While we are optimistic about the future with the Irish economy remaining in rude health, the challenges for SMEs remain a constant thorn for growth.

Last year, our survey of 500 SMEs saw that 57% said they had increased revenue from the previous year, but operating and energy costs plus the rise in minimum wage were key barriers to growth.

These findings were backed up by a recent report from Peninsula Ireland, which showed that 43% of SMEs said escalating costs, including payroll increases and the cost of living was their top concern for the year ahead.

While this paints a gloomy picture, preparation for these changes can make the view much brighter. Knowing the regulations and preparing your business accordingly provides the transparency needed for employees and stakeholders. We have included the top payroll watchouts in 2025.

1. Minimum Wage Increase

Citing our research from last year, 22% of SMEs told us that the previous increase in the minimum wage was a significant barrier to growth. Managing how this impacts your business will go a long way to present and future success.

As of January 1, this year, the minimum wage in Ireland increased to €13.50 per hour for employees aged 20 and above, up from €12.70. While this change aims to help employees with the cost of living, which is understandable, it poses significant challenges for SMEs. Retail and hospitality sectors, which often rely on hourly staff, are particularly impacted. SMEs should also be aware that the minimum wages differ for younger employees:

• Aged 19: €12.15/hour
• Aged 18: €10.80/hour
• Under 18: €9.45/hour

Employers paying above minimum wage may still face knock-on effects, as increased baseline wages drive up expectations for other hourly employees. To balance the wage books, practical advice we would suggest:

• Review your payroll to ensure that you are compliant and meet the new requirements.
• Basic salary, shift premium (this doesn’t include Sunday or public holiday premiums) and bonus or service charges can all be included when calculating minimum wage.
• For employers providing boarding or lodgings to their staff – the maximum that can be deducted to calculate compliance with minimum wage is €1.21 per hour worked for board or €31.89 per week for accommodation.
• Employees who are close relatives of the employer are excluded from minimum wage when the employer is a soletrader. This exclusion doesn’t apply to limited companies.
• Craft or professional apprentices who fall under the meaning of Industrial Training Act 1967 are also excluded from minimum wage.
• Some sectors have higher minimum rates of pay under Employment Agreements e.g. Security & Cleaning. Knowing your sector’s specific requirements around the minimum wage will eradicate unwanted headaches down the track.

2. Enhanced Reporting Requirements (ERR)

A huge area of focus for SMEs in 2025. This came into force at the start of last year, when employers are now required to report certain expenses and benefits made to employees or directors. This reporting provides Revenue with increased visibility whilst providing assurance to employees that their income is being reported properly to the Revenue. ERR must be reported in real time and returns must be submitted to Revenue on or before any reportable payment is made to an employee or director.

There is some confusion on what is reportable and what isn’t reportable. To clarify:

• What isn’t reportable: Any expense paid directly from the employer’s bank account or credit card to the service provider in payment of an expense.
• What is reportable: Any expense or reimbursement paid from the employer directly to an employee or director.

The reportable expenses are broken down into the following headings:

• Travel:
  • Vouched payments: Employees and directors can claim vouched expenses for business journeys where receipts are provided. This includes taxi fares, bus/train tickets, flights, toll charges, parking fees, and fuel.
  • Unvouched Payments: Mileage rates for example are payable tax-free without receipts, provided they do not exceed the prevailing civil service rates.
• Subsistence:
  • Vouched Payments: Covers expenses such as meals and accommodation incurred during work duties, with receipts required.
  • Unvouched Payments: A daily or overnight subsistence rate may be paid tax-free if it does not exceed civil service rates.
  • Site-Based Employees/Directors (Country Money): A tax-free payment of up to €181.60 per week is available for employees and directors without a fixed base, working at various locations. This takes precedence over other unvouched travel or subsistence payments.
  • Eating on Site Allowance: Site-based employees or directors can receive up to €5 per day tax-free if no meal facilities or other subsistence payments are provided. This cannot be claimed in addition to the weekly site-based payment.
• Remote working daily allowance:
  • Employers can pay up to €3.20 per day tax-free for remote work-related costs (electricity, heat, broadband). Employers must report payment details under the ERR and Excess payments are taxable.
• Small Benefit Exemption:
  • Changes took effect on January 1, 2025. Employers may provide up to five tax-free vouchers yearly, totalling €1,500, for goods/services (not cash). If more than five benefits are given in a year, only the first five benefits may qualify for the tax exemption. Unused allowances cannot be carried from one year to the next. Employers must report details of vouchers given to employees under the ERR.

A lot to digest? Absolutely. ERR keeps everyone on its toes and can be difficult to get your head around. Some key watchouts for us in 2025 related to ERR we’re advising at the moment:

• Information to be Returned: The return you submit must include the name of the employee, the nature of the benefit, the amount of the benefit and the date it was provided.
• Filing Date: The return must also be made on or before the date on which the payment or benefit is provided. We recommend streamlining their payment process to make the reporting process as efficient as possible. For example, agree one set date each month for payments with reporting to be done on the same day.
• Enforcement: Revenue viewed 2024 as a settling in period and confirmed that they would not seek to apply penalties for non-compliance until 2025. Employers should ensure that they are fully compliant from January 2025 onwards as penalties will apply. We expect Revenue to undertake regular spot checks and interventions as a means of driving compliance levels.  
• Training: Employers should ensure that their inhouse finance and payroll teams are familiar with the requirements and reporting obligations.

The road ahead

There is no doubt the changes mentioned add to the ongoing list of obstacles for SMEs to overcome.

However, putting in the hard yards on preparation, understanding the requirements and what this means for your business will go a long way to meeting those challenges successfully.  

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