In 2017, the minister announced the introduction of the Key Employee Engagement Programme (KEEP), an employee share option incentive scheme targeted at the Small and Medium Enterprise (SME) sector. The incentive scheme allows qualifying companies to remunerate key employees in a manner which is tax-efficient and is linked to the future success of the company, provided certain qualifying requirements are met throughout the option-holding period.
KEEP aims to support SMEs in attracting and retaining key talent by effectively deferring the taxation of gains on employee owned shares until the sale of the shares. The scheme came into effect in January 2018 and currently applies for qualifying options granted before 31 December 2023.
In his Budget speech, the minister acknowledged that the level of interest to date in the KEEP incentive has been less than expected. In order to incentivise the take-up of the incentive and to support SMEs in attracting and retaining key talent, the minister announced a number of changes to the rules relating to the total market value of qualifying share options which may be granted by a qualifying company to an employee or director.
Specifically, the ceiling on the maximum annual market value of share options that may be granted by an SME to any one employee or director under the KEEP scheme will be increased to 100% of the annual emoluments of the employee or the director in the year in which the qualifying share option is granted. A 50% ceiling previously applied. In addition, the minister announced that the overall value of share options which may be awarded to each employee will increase from €250,000 to €300,000, while also changing the time period in which this limit applies from three consecutive years to a lifetime limit.
As noted in more detail in the commentary on PAYE modernisation later in this publication, Revenue’s updated PAYE system will be fully operational from 1 January 2019. From this date employers will be required to submit real time information on remuneration and PAYE data for each employee, and the modernisation will allow employees access to real time online information relating to their taxable pay, taxes paid, tax credits etc.
In his Budget Speech the minister announced an increase in the hourly minimum wage. From 1 January 2019, the hourly minimum wage will be increased to €9.80 following a recommendation from the Low Pay Commission. In tandem with the minimum wage increase, the minister also announced related changes to USC and PRSI, as noted below. As such, an increase in gross income should not be significantly eroded by PAYE/USC/PRSI for employees in this space.
From 1 January 2019, the weekly income threshold for the higher rate of employer’s PRSI will increase from €376 to €386. This follows a recommendation of the Low Pay Commission to ensure that the increase in the hourly minimum wage does not lead to a reduction in working hours for a full-time minimum wage worker.
With effect from 1 January 2019, the ceiling of the second USC rate band will be increased. This should ensure that the salary of a full-time worker on minimum wage will remain outside the top rate of USC. The impact of this increase is included in the Tax Rates and Credits 2019 table at the end of the publication.
As anticipated, from 1 January 2019 there will be a 0.1% increase (from 0.8% to 0.9%) in the National Training Fund levy payable by employers in respect of reckonable earnings of employees in Class A and Class H employments.
This increase represents an additional cost for employers given that it is collected as part of employer’s PRSI. The current rate of employer’s PRSI of 10.85% will increase to 10.95% from 1 January 2019 as a result of this change.
The minister also announced that with effect from 1 January 2020, there will be a further 0.1% increase (from 0.9% to 1.0%) in the National Training Fund Levy payable by employers in respect of reckonable earnings of employees in Class A and Class H employments. This will increase employer PRSI to 11.05%.