New Employees and Employees Recommencing

  1. What happens when a new employee commences employment (or an employee resumes employment after a previous cessation)?
  2. What is a "new employee"?
  3. Personal public service numbers
  4. Ask the employee for form P45
  5. Where the employee gives form P45 to the employer
  6. PRSI contributions
  7. Where form P45 relates to an earlier tax year
  8. Where form P45 is not given to the new employer
  9. Employee's previous pay and tax notified to the employer
  10. Refund of tax to a new employee
  11. Payments by two employers in the same income tax week or month
  12. Change from monthly to weekly pay, etc, following change of employment

1. What happens when a new employee commences employment (or an employee resumes employment after a previous cessation)?

The information below shows the procedure to follow when a new employee commences (or a previous employee recommences) in your employment.

Where the new employee supplies a Form P45

  1. Complete and submit Form P45 part 3 to the employee's Revenue office.
  2. Prepare a temporary tax deduction card ( Employer's PAYE Records part 9.1) or alternative record and operate the temporary basis of tax deduction ( Calculation of Tax Under the PAYE System part 7)

Note:
The emergency basis of tax deduction (Calculation of Tax Under the PAYE System parts 8 - 9) must be operated if the P45 given to the employer indicated that the emergency basis applied or there is no PPS number quoted on the P45 and the number has not been provided to the employer.

Following the above steps Revenue will issue a tax credit certificate to the employer. This will show the employee's tax credits, standard rate cut-off point and the appropriate tax rates. The certificate may be on a cumulative basis (effective from the beginning of the tax year, in which case it will also include the employee's pay and tax details, if any, from the previous 1 January to the date of commencement with the new employer) or on a Week 1 Basis.

Where the new employee has not supplied a Form P45 and has a PPS Number

Where the new employee has not supplied a Form P45 and does not have a PPS Number

Following the above steps Revenue will issue a tax credit certificate to the employer. This will show the employee's tax credits, standard rate cut-off point and the appropriate tax rates. The certificate may be on a cumulative basis (effective from the beginning of the tax year, in which case it will also include the employee's pay and tax details, if any, from the previous 1 January to the date of commencement with the new employer) or on a Week 1 Basis.

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2. What is a "new employee"?

For PAYE purposes a new employee is one who takes up employment or resumes employment after a previous cessation of employment. It also includes a company director who may previously have been self-employed.

If the employer is aware that the new employee was not previously employed (e.g. a school-leaver), the employee should be told to contact their local Revenue office quoting the employer's registered number and their own Personal Public Service (PPS) number issued by the Department of Social Protection. The first-time employee will be asked to complete a pdfForm 12A - Application for a Certificate of Tax Credits and Standard Rate Cut-Off Point (PDF, 211KB). Shortly afterwards, a tax credit certificate will issue to the employee and a tax credit certificate will issue directly to the employer.

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3. Personal public service numbers

The Personal Public Service number is an individual's unique reference number and is issued by the Department of Social Protection. It is used for a wide variety of public services, such as Social Welfare, Revenue, Public Health care and Education.

On commencement of employment, the employer must take reasonable measures to verify that the PPS number provided is a valid one and that it refers to the employee who provided it. The employer will be regarded as having taken reasonable measures where they check the PPS number provided against any of the following documents:

  • A tax credit certificate from a previous employment
  • A form P45
  • A Social Welfare services card or PPSN registration letter issued by the Department of Social Protection
  • A notice of assessment to income tax or capital gains tax
  • A form P21 Balancing Statement
  • A form P60
  • Any other item of correspondence from Revenue which specifically quotes the PPS number
  • A pay slip from a previous employer which shows the PPS number

If a new employee does not hold a PPS number they should be advised to call in person to any Social Welfare Local Office and ask for Leaflet SW100 to apply for a PPS number.

The format of the employee PPS number

The format of the PPS number is 7 numeric characters (including leading zeros), a check character (alpha) and possibly a W, T or X.

Example 1

PPS number 1234567A

This is the most common PPS number format - 7 numeric characters and a check character.

Example 2

PPS number 1234567AW

This format is sometimes used for the spouse of Example 1.

Example 3

PPS number 1234567AT

This PPS number format is used to advise the employer that the individual with PPS number 1234567A also has a second live employment with the same employer. In other words, the employee has 2 employments with the same employer at the same time - the employee is on their payroll twice. For example, an individual may be employed as a sales assistant during the day and also works in the accounts office one night per week and the employer wishes to record the two sets of pay separately - see Note 2 below.

The tax credit certificate with PPS number 1234567A is used for the first employment. The tax credit certificate with PPS number 1234567AT is used for the second employment with the same employer.

Example 4

PPS number 1234567AX

This PPS Number format is used to advise the employer that the spouse with PPS Number 1234567AW has a second live employment with the same employer. In other words, the employee has 2 employments with the same employer at the same time - the employee is on their payroll twice (see Note 2).

The tax credit certificate with PPS number 1234567AW is used for the first employment.

The tax credit certificate with PPS number 1234567AX is used for the second employment with the same employer.

Note 1: The PPS number 1234567A is used in this guide as an example. This PPS number should never be used by an employer as a 'temporary' number for any employee - all employees must obtain their own PPS number from the Department of Social Protection.

Note 2: In the Examples 3 & 4 above, it is the employer's choice to put the employee on the payroll twice. The employer wants to keep the two sets of pay separately on their payroll records. There is no requirement or obligation to do this. Other employers would just put the employee on the payroll once - and pay the extra wages or salary altogether.

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4. Ask the employee for form P45

A person taking up employment or resuming employment after a previous cessation should be asked for parts 2 and 3 of form P45. Paragraphs 5, 6 & 7 apply if the employer is given form P45, and paragraph 8 if the employer is not given form P45.

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5. Where the employee gives form P45 to the employer

An employer who is given parts 2 and 3 of form P45 should follow the instructions to the new employer on part 2 of the form. They should retain part 2 of the P45 and immediately send part 3 (and part 4, if given to the employer) to Revenue. This can be done electronically through the Revenue On-Line Service (ROS).

Revenue will issue a tax credit certificate to the new employer.

If a pay day occurs before receipt of either document the new employer should operate PAYE either on the temporary basis (Calculation of Tax Under the PAYE System part 7) or on the emergency basis (Calculation of Tax Under the PAYE System parts 8 - 9)

Where the temporary basis is used, the tax credits and standard rate cut-off point information on the P45 can be used on a week 1/month 1 basis but the previous pay and tax should not be used to operate the PAYE cumulative system. The previous pay and tax will be notified to the employer on the tax credit certificate issued by Revenue (see paragraph 9).

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6. PRSI contributions

The new employer is not concerned with the amount of the PRSI contributions shown on the form P45 given to them in the calculation of PRSI contributions appropriate to the pay of the employee in their employment. However, the new employer must take into account the pay at the commencement of the employment in the context of the income ceiling(s) for PRSI purposes.

See PRSI Guide and Leaflet SW14 issued by the Department of Social Welfare www.welfare.ieExternal link

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7. Where form P45 relates to an earlier tax year

An employer who is given parts 2 and 3 of form P45 for the tax year ended on previous 31 December should act in accordance with paragraph 5. However, where the form does not relate to either the current year or to the previous year, part 3 should be completed and sent to Revenue and the emergency basis (Calculation of Tax Under the PAYE System parts 8 - 9) should be applied.

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8. Where form P45 is not given to the new employer

An employer who does not receive a form P45 or who is not issued with a tax credit certificate must:

No other forms or documents can be substituted for the P45 - previous employment P60's, pay-slips, etc are not acceptable in place of the P45.

It is extremely important that an employer notifies Revenue when a new employee commences employment and it is not good practice for an employee to remain on a week 1/month 1 basis for an unnecessary period of time. Only in exceptional circumstances would it be acceptable for an employee to remain on a week 1/month 1 basis across 2 tax years.

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9. Employee's previous pay and tax notified to the employer

When a new employee commences in employment, or an employee resumes employment with the same employer after a previous cessation, all the pay and tax details from 1 January up to the date of the new employment will be included on the tax credit certificate issued by Revenue to the new employer.

The previous pay and tax figures from the form P45 should not be used to operate the PAYE cumulative system. Only the tax credit figure and standard rate cut-off point should be taken from the P45 (where the temporary basis is used) and operated on a week 1/month 1 basis. When the new tax credit certificate is received the pay and tax figures notified thereon can be entered onto the payroll record.

If details of previous pay and tax are not known or are not available (for whatever reason), a tax credit certificate will issue for that employee on a week1/month1 basis and previous pay and tax figures will not be shown on the tax credit certificate.

The details of previous pay and tax (if available) will also be shown on all subsequent amended cumulative tax credit certificates issued for this employee for the rest of the tax year.

If Revenue is advised of supplementary pay and tax for an employee for the current year, the supplementary pay and tax details will be added to the details already known and sent to the employer on the next tax credit certificate issued for that employee.

The tax credit certificate will not give a breakdown of each employment or employer where the employee received the earnings or paid the tax - it just shows the total cumulative figures to the date of commencement of this period of employment.

The PAYE system works on a cumulative basis - all earnings to date are taken into account when calculating an employee's PAYE. Where an employee had a previous employment(s) with the same employer earlier in the tax year, the employer would know from their own records the amount of pay and tax already paid to the employee during different periods of employment but they must use the cumulative pay and tax from all employments to date when calculating PAYE liability.

The pay and tax figures notified to the employer on the cumulative tax credit certificate should not be significantly different from figures obtained from (say) the most recent cumulative P45 as the source of the figures will, in most cases, be the same.

The employee's previous pay and tax details are included on the tax credit certificate to assist the employer in calculating the correct PAYE due. The pay and tax figures are the most up-to-date figures available to Revenue. If the pay and tax figures are not available, the tax credit certificate issued will be on a week1/month1 basis.

The pay and tax details sent from Revenue can be checked by the employer (either electronically or manually) against information they already hold in respect of the employee. If the employer is aware that the pay and tax figures on the tax credit certificate are incorrect, this should be brought to the attention of the relevant Revenue office.

Note: It is Revenue policy not to issue a tax credit certificate that would cause hardship to the employee. If the implementation of a cumulative tax credit certificate generates a nil salary or a large underpayment the employer should contact Revenue for verification.

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10. Refund of tax to a new employee

A refund of tax may be made to a new employee where a cumulative tax credit certificate is received by the employer and the refund arises as a result of applying the tax credits and standard rate cut-off point on the tax credit certificate.

Any refund of tax due to a new employee who is a former employee of the same employer must be made on the basis of tax shown on the tax credit certificate received from Revenue and not on the basis of the employer's record of tax deducted during the former period of employment.

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11. Payments by two employers in the same income tax week or month

The entry for the week or month number on the form P45 indicates to the new employer the number of the income tax week or month up to which the previous employer gave tax credits and the standard rate cut-off point to the employee. If the new employer makes a payment in the same week or month there are no tax credits or balance of standard rate cut-off point remaining to be set against that payment (unless the emergency basis applies and tax credits and standard rate cut-off point as set out in Calculation of Tax Under the PAYE System parts 8 - 9 are to be allowed).

Example:

An employee who is paid €700 per week leaves employment in week 10.

His tax credits are €68 per week and his standard rate cut-off point is €653 per week, applied cumulatively.

The amount of pay for the part of week 10 which the employee worked is €500.

For the purposes of this example, the standard rate of tax is taken as 20% and the higher rate as 41%.

Tax position at date of leaving in week 10 (shown on form P45):

The tax position at date of leaving in week 10 as shown on form P45
Week no. Cumulative net pay € Cumulative standard rate cut-off point Cumulative tax due at 20% Cumulative tax due at 41% Cumulative gross tax € Cumulative tax credits € Cumulative tax due €
10 6,800 (700 x 9 + 500) 6,530 1,306 110.70 1,416.70 680 736.70

The employee begins work in a new employment during week 10 and is paid €300 for that first week.

The new employer completes part 3 of the form P45, sends it to Revenue and operates tax on the temporary basis. He notes from the form P45 that tax credits and the standard rate cut-off point have been allowed up to and including week 10. He calculates the new employee's tax in week 10 as follows:

The calculation of the new employee's tax in week 10
Week no. Net pay € Standard rate cut-off point Tax due at 20% Tax due at 41% Gross tax € Tax credits € Tax due €
10 300 Nil Nil 123.00 (300 @ 41%) 123.00 Nil 123.00

The new employer then receives a cumulative tax credit certificate.

The employee earns €800 per week for every week after week 10.

The position at week 10 and subsequent weeks will be as follows:

The tax position at week 10 as shown on form P45 and subsequent weeks
Week no. Cumulative net pay € Cumulative standard rate cut-off point Cumulative tax due at 20% Cumulative tax due at 41% Cumulative gross tax € Cumulative tax credits € Cumulative tax due €
10 7,100 6,530 1,306.00 233.70 1,539.70 680 859.70
11 7,900 7,183 1,436.60 293.97 1,730.57 748 982.57
12 8,700 7,836 1,567.20 354.24 1,921.44 816 1,105.44
13 9,500 8,489 1,697.80 414.51 2,112.31 884 1,228.31

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12. Change from monthly to weekly pay, etc, following change of employment

The form P45 shows whether an employee was paid weekly or monthly in the previous employment. If there is a different frequency of payment in the new employment (e.g. an employee formerly paid weekly is now to be paid monthly) the new employer should use the figures on the form P45 to calculate the employee's annual tax credits and standard rate cut-off point and then divide these annual figures into the appropriate amounts to be applied to the new pay frequency; weekly, monthly, etc.

This does not apply where the form P45 stated that the emergency basis applied (see Calculation of Tax Under the PAYE System parts 8 - 9).

Example:

A new employee gives his form P45 to his new employer. In his previous employment he was paid on a weekly basis. His form P45 shows:

Weekly tax credit €68.00

Weekly standard rate cut-off point €653.00

In the new employment he is to be paid on a monthly basis. His employer calculates the tax credits and standard rate cut-off point to be set against pay pending the issue of a tax credit certificate as follows:

Convert the weekly figures stated on form P45 to annual figures:

Weekly tax credit €68.00 x 52 = €3,536 per annum

Weekly standard rate cut-off point €653.00 x 52 = €33,956 per annum

Now divide these annual figures into the corresponding monthly amounts:

Annual tax credit €3,536 / 12 = €294.67 per month

Annual standard rate cut-off point €33,956 / 12 = €2,829.67 per month

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