Salary Sacrifice in Ireland: A Guide for Employers

Salary sacrifice is where an employee agrees to give up part of their pay in exchange for a benefit from their employer. Used correctly it can be tax-efficient, but it is a narrower and more tightly defined arrangement than most reward schemes, and it is easy to confuse with the Small Benefit Exemption, which works very differently.

What Is Salary Sacrifice?

Revenues Tax and Duty Manual treats a salary sacrifice arrangement as any arrangement under which an employee gives up the right to receive part of the remuneration due under their terms or contract of employment, and in return the employer agrees to provide a benefit. In plain terms, the benefit is paid for out of the employees own pay rather than being a genuine extra from the employer.

How a Salary Sacrifice Scheme Works in Ireland

The employees contract is varied so that part of their gross pay is exchanged for a benefit before tax is calculated. Because the sacrifice happens before tax, the employees taxable pay is reduced. The variation should be agreed in advance and be genuine, rather than applied after the fact.

The Best-Known Example: Cycle to Work

Under the Cycle to Work scheme, an employer buys a bicycle and safety equipment for an employee, and the employee repays the cost through salary deductions taken before tax, USC and PRSI. Citizens Information explains the scheme here: Cycle to Work scheme.

An employee can use the scheme once every four years, with the span counted by tax year.

Salary Sacrifice vs the Small Benefit Exemption

These two are easy to confuse, but Revenue treats them very differently. To qualify for the Small Benefit Exemption, the reward has to be a genuine addition to normal pay. It must not be provided in place of salary, a bonus or other contractual pay, and it must not be part of a salary sacrifice arrangement. Here is how that plays out in practice:

A CleverCards reward given as a genuine extra, funded by the employer, is a straightforward way to stay on the right side of this line. See our full Small Benefit Exemption guide.

Three Ways to Give Value to Staff

Risks and Limits

Informal or poorly documented salary sacrifice arrangements can be challenged by Revenue if the contractual variation is not genuine and agreed in advance. Get the wording and payroll treatment checked by a tax adviser before setting up any scheme, and keep salary sacrifice clearly separate from any tax-free reward programme you also run.

A Simple Checklist for Employers

• Ask whether the employee is giving up pay to get the benefit. If yes, it is salary sacrifice.
• If you want the Small Benefit Exemption to apply, fund the reward yourself and keep it separate from pay.
• Document any salary sacrifice arrangement in advance, in writing.
• Keep records that show how each benefit was funded and reported.

Where CleverCards Fits

If you want to reward employees tax-free, CleverCards digital Visa cards can be given as a genuine extra under the Small Benefit Exemption, with each card recorded in the CleverCards business portal. Explore employee benefits with CleverCards, read our Benefit in Kind guide, or see how tax-free gift cards for staff work.