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How to Use Tax-Free Vouchers to Reward Employees in Ireland

~7min reading time –
Gift Vouchers To Employees

Hiring the right person is difficult, but so is retaining them. In a competitive job market like Ireland, where over 45% of professionals work in a hybrid model, employee engagement isn't just an HR initiative; it is a business strategy.

Statistics show that around 74% of employees won't stay with a company beyond a year if they feel undervalued. When recognition is absent in a company, productivity dips and turnover costs increase, with the average cost of replacing an employee in Ireland reaching €13,000.

These realisations have led Irish businesses to consider employee recognition as a business imperative. More companies are now opting for tax-free vouchers that are cost-effective, personalised, and help them retain top talent.

What Are Tax-free Vouchers?

Tax-free vouchers are non-cash gifts that employers can offer to their employees without them having to pay any tax on them. When employers in Ireland reward employees with cash bonuses, these are processed through the payroll.

These bonuses are then considered a part of their income and are subject to taxes like Pay as you earn (PAYE) income tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI). Meaning, if employers reward €1,000, the net bonus reduces significantly due to taxes.

To solve this, Revenue introduced the Small Benefit Exemption Scheme. Under this scheme, employers can give each employee up to 5 tax-free non-cash benefits whose total value does not exceed €1,500. If the total amount of the benefit exceeds €1,500, the entire amount is taxable. Popular tax-free voucher benefits include:

  • Store Vouchers
  • Spa Vouchers
  • Dining Vouchers
  • Restaurant Gift Vouchers

Can Prepaid Cards Be Used As Tax-free Benefits?

Yes, Prepaid Cards are considered a non-taxable benefit. According to the small benefit exemption scheme, any non-cash benefit qualifies as a non-taxable benefit. To qualify:

  • The card must not be redeemable for cash
  • It must be provided as a once-off or part of the 5 allowable annual benefits
  • The total value across all benefits must not exceed €1,500 per employee per year.

Unlike traditional vouchers tied to specific stores, prepaid employee benefit cards offer far more flexibility.

For example, CleverCards provides digital prepaid Mastercards that can be preloaded with funds and used at over 50 million merchants worldwide, both online and in-store.

Employees can also add these cards to their Google Pay or Apple Pay wallets and make fast, contactless payments wherever Mastercard is accepted.

Benefits Of Using Tax-free Vouchers & Prepaid Cards For Employee Recognition In Ireland

Rewarding employees is not just good for employee morale but also for businesses in Ireland. Here are some of the benefits of tax-free vouchers:

1. Cost-efficient

Cash bonuses are taxed heavily, sometimes reducing the reward value significantly. With Tax-free gift vouchers or prepaid cards, employers can reward employees with the full value of €1,500 without paying any PAYE, USC, or PRSI tax on it.

2. Tax-compliant

Non-cash benefits were introduced by Revenue to help employers with tax-free rewards. As long as businesses comply with Revenue's rules, the combined value of the reward must be €1,500. The gift is a non-cash voucher or card and cannot be redeemed for cash; they are tax-free.

3. Digital-first

With companies moving to hybrid models, the need for non-cash gifts is now more than ever. Platforms like CleverCards make digital gift cards accessible for employers. It is not only suitable for teams that are distributed around the world, but also for bulk ordering and managing.

Vouchers Vs Digital Card: Best Tax-free Gift In Ireland

Employers in Ireland are now turning towards Digital Cards for good reason. While both vouchers and digital cards are compliant under the Small Benefit Exemption Scheme, there is a key difference in how employees experience the reward.

With Digital Cards like the ones offered by CleverCards, employees have the flexibility to use them anywhere they want, whether online or in-store using contactless. This gives employees the freedom to choose their reward. On the contrary, a gift voucher is limited to a particular store or use case, and the employee may or may not feel the need to use it. In this case, the voucher goes unused.

Secondly, with companies moving to remote work environments, digital cards can be easily availed and distributed. On the other hand, physical vouchers are a hassle to procure and distribute, and add unnecessary admin overload. Lastly, most vouchers come with an expiry date, while digital cards usually have a longer validity period.

Compliance In Ireland: When Giving Gift Vouchers To Employees

When availing tax-free treatment under Revenue's Small Benefit Exemption Scheme, businesses must comply with these rules:

1. Businesses can give up to 5 non-cash benefits whose total value must not exceed €1,500.

2. The benefit cannot be adjusted out of salary.

3. The gift voucher must be bought by the employer and not the employee.

4. Businesses must report to Revenue any non-cash benefit issued in real-time.

How Much Can You Save With Tax-free Vouchers Vs Payroll Bonuses?

When you give a cash bonus to an employee, it is treated as taxable income, meaning both the employer and the employee have to pay taxes on it.

For instance, a cash bonus of €1,000 will cost an employer €2,313.54 after adding PRSI tax.

In comparison, the same €1,000 when issued via a non-tax voucher will cost an employee €1,000.

Learn more about how businesses can save taxes in employee benefits with this guide.

Best Times To Use Tax-Free Vouchers

One of the advantages of using tax-free gift vouchers is that they can be issued up to 5 times in a year with a cumulative value not exceeding the exemption limit. Here are the best times to use these tax-free vouchers to reward employees:

1. Christmas or Year-End: Send holiday wishes to employees by gifting them a digital gift card that they can use to treat themselves.

2. Work Anniversaries: Reward employees for their 1-year, 5-year, and 10-year contributions to the organisation.

3. New Joinees: Make new joinees feel welcomed by offering gift vouchers.

4. Personal Rewards: Celebrate work milestones and wins with personalised gifts.

5. Employee Wellness: Say thank you to your employees on Mental Health Day, International Women's Day, etc.

Gift vouchers are a great way to tell your employees they matter. With the Small Benefit Exemption Scheme, employers can easily reward their employees with meaningful, tax-free rewards.

Want to learn how you can get these cards for your team? Fill out the form below.