Modified rate employees change in PRSI treatment of income other than their earnings from their modified rate employment


Print page

MODIFIED RATE EMPLOYEES
CHANGE IN PRSI TREATMENT OF INCOME
OTHER THAN THEIR EARNINGS FROM THEIR MODIFIED RATE EMPLOYMENT

1. SUMMARY OF CHANGES

Prior to 2013 civil and public servants recruited prior to April 1995 were exempt from PRSI on income other than earnings.  From 2013 that income is liable to a 4% PRSI charge, once that income includes either:-

  1. (i)    earned self-employed income, or
  2. (ii)   self-employed income which comes within PAYE. 

The PRSI charge on all earned self-employed income and on any unearned income these employees have, applies from 1-1-2013 and is payable along with their tax through the self-assessed tax system. 

The PRSI charge on all self-employed income which comes within PAYE, is payable from 28 June 2013 and is deducted at source.  

The new PRSI charge will not give rise to any social insurance entitlements.

Social insurance entitlements based on PRSI paid on their main civil or public service employment will not be affected.

2.  PRSI CHARGED ON DIFFERENT FORMS OF INCOME

Generally persons between 16 years and under pensionable age are liable to PRSI on all of their different forms of income.

Employment Income

PRSI is paid by employees and their employers on their salary from employment which is insurable for PRSI purposes.  Under PRSI rules this income is referred to as “reckonable earnings”.

Most employees, including civil and public sector workers recruited after April 1995, pay PRSI Class A.

Civil and public sector workers recruited before April 1995 pay PRSI at modified rates of contributions and are classified for PRSI purposes under PRSI Classes B, C or D.  These are referred to as “modified rate employees”.

Non-employment Income

Employees may have additional income, apart from their employment income.  For PRSI purposes this additional income falls into one of the following categories.

  • “reckonable income”   This refers to income which is outside PAYE and on which tax is collected through the self-assessed system of tax collection.  This can be either earned from a profession or trade or unearned from, for example, rental income.
  •  “reckonable emoluments” This is income which is not derived from insurable employment and which is taxed under the PAYE system.  It includes:
    • Income paid to certain working directors who own 50% or more of the ordinary share capital of a company either directly or indirectly,
    • Certain forms of non-employment income on which tax is collected at source under the PAYE system (i.e. Approved Retirement Funds).

     

3. MODIFED RATE EMPLOYEES WITH ADDITIONAL INCOME

Modified rate employees have not been liable to pay PRSI on other sources of income they are in receipt of.   From 2013 this exemption no longer applies to certain contributors.   For those affected, their previously exempt income is now liable to a PRSI charge of 4%.

Categories Affected

The employees affected are those individuals who, in addition to having income that is charged to PRSI at the modified rates, also have income which is either earned from a trade, a profession or which is regarded as “reckonable emoluments” under PRSI rules.

 

Modified rate employees with unearned income only, are not affected by this measure.  All employees with only unearned income (including modified rate employees) are currently exempt from PRSI on that income.  This unearned income will be liable to PRSI from 2014 – details of these measures will be announced later in 2013.

Impact of Change

Modified rate employees in the categories affected will be liable to pay PRSI on all of their non-employment income (reckonable income or reckonable emoluments or both) which was previously exempt.

Reckonable Income

With effect from 1 January 2013, all reckonable income of modified rate employees affected by this measure, is subject to PRSI.  The PRSI charge of 4% for each year must be paid by the individual as part of the Revenue Commissioners’ Pay and File system by the 31 October deadline.  Full details of the Revenue Commissioners’ Pay and File system can be found at www.revenue.ie.

 

Reckonable Emoluments

With effect from 28 June 2013, a person paying reckonable emoluments to a modified rate employee will collect PRSI at 4% on that income under the PAYE system and remit it to the Collector General.

 

Examples of how these changes affect modified rate employees with different forms of income are provided at the end of this notice.

Not Impacted

This measure will not affect the treatment of employment income earned by modified rate employees who have a second or subsidiary insurable employment for which they receive reckonable earnings – see paragraph 5 below.

4. CLASS K 4% PRSI CHARGE

 The PRSI paid will be classified for the purpose of recording the contribution under PRSI Class K.  Class K contributions do not give entitlements to any social insurance benefits based on the payment of the new PRSI charge.  The social insurance entitlements of modified rate employees which are based on PRSI paid on their employment income will not be affected by the changes being brought in.

The PRSI charge will apply to all of the income.  (Note: For certain other Class K contributors PRSI is not paid if their weekly income is less than €100.)

5. MODIFIED RATE EMPLOYEES WITH A SECOND OR SUBSIDIARY EMPLOYMENT

Modified rate employees who have a second or subsidiary insurable employment for which they receive reckonable earnings, will not be affected by this measure.  Modified rate employees with a second employment which is deemed to be a subsidiary employment and is not their principal means of livelihood, will continue to be insurable for Occupational Injuries social insurance only.  Further details of subsidiary employment can be found at http://www.welfare.ie/en/Pages/Subsidiary-employment-regulations.aspx

6. FURTHER INFORMATION

Further information may be obtained relating to the payment of PRSI on the non-employment income of modified rate employees from:

Information Services
Department of Employment Affairs and Social Protection 
Social Welfare Services 
College Road
Sligo
LoCall: 1890 66 22 44 (from the Republic of Ireland only)
Telephone: +353 71 9193313  (from Northern Ireland or overseas)

EXAMPLES

Example 1
Modified rate contributor with earned self-employed income
Sean is a civil servant and is also a self-employed taxi driver
Salary from Civil Service:                   Liable to PRSI at the Class B
Taxi income:                                       Liable to PRSI at 4% at Class K from 1/1/2013

Example 2
Modified rate contributor with unearned income
Claire is a nurse in the army and also receives rent from a property
Salary from the army:                                    Liable to PRSI at Class C
Rental income:                                    Not liable to PRSI at present. Will be liable in 2014

Example 3
Modified rate contributor with reckonable emoluments
Patrick is a doctor in the HSE who is also a working director of a company in which he controls more than 50% of the ordinary share capital
Salary from HSE:                                 Liable to PRSI at Class D
Salary from directorship:                    Liable to PRSI at 4% at Class K from 28 June 2013

Example 4
Modified rate contributor with earned self-employed income and reckonable emoluments
Susan is an administrator in the HSE, is in private practice as a consultant, and is also a working director of a company in which she controls more than 50% of the ordinary share capital
Salary from HSE:                                 Liable to PRSI at Class D
Private practice income:                    Liable to PRSI at 4% at Class K from 1/1/2013
Salary from directorship:                    Liable to PRSI at 4% at Class K from 28 June 2013

 

Example 5
Modified rate contributor with earned self-employed income, reckonable emoluments and unearned income
John is a doctor in the HSE who has a private practice, is a working director of a company in which he controls more than 50% of the ordinary share capital and who is in receipt of income from stocks and shares
Salary from HSE:                                 Liable to PRSI at Class D
Private practice income:                    Liable to PRSI at 4%  at Class K from 1/1/2013
Salary from directorship:                    Liable to PRSI at 4%  at Class K from 28 June2013
Income from stocks and shares:         Liable to PRSI at 4%  at Class K from 1/1/2013

Example 6
Modified rate contributor with second or subsidiary insurable employment
Mary is a Civil Servant who works as a waitress at the weekends
Salary from Civil Service:                                           Liable to PRSI at Class B
Salary from second/subsidiary employment:             Liable to PRSI at Class J

Last modified:01/07/2013
 

 Office Locator

 
Search for your local office
img