What pay includes

Salary sacrifice arrangements

A salary sacrifice is where an employee agrees to give up some of their pay in exchange for a benefit provided by an employer.

A tax exemption exists for certain salary sacrifice arrangements, provided certain conditions are met.

Which benefits qualify for a tax exemption?

Only certain benefits qualify for a tax exemption. These are:

• travel passes
• shares under an approved profit-sharing scheme
• and
• bicycles bought through the cycle to work scheme.

An employee can avail of more than one of these benefits in a year, provided the conditions for each benefit are met.

What are the conditions for a qualifying arrangement?

For an arrangement to qualify for the tax exemption, all of the following conditions must be met:

• there must be an alteration to the terms and conditions of employment
• the alteration must not be retrospective and it must be recorded in writing
• the employee must not exchange the benefit for cash
• the employee must not pass the benefit on to their family or other connected persons
• the employee must not receive a compensating payment in return for the salary sacrificed
• and
• the salary sacrificed and the benefit provided must fall within the same year of assessment. 

Where all of the above conditions are not met, the tax exemption will not apply. In this case, an employee is not regarded as having sacrificed salary and they remain taxable in full on their gross income. The employer must deduct Income Tax, PRSI and USC on the full payment to the employee.