The Irish government’s Budget 2027, announced on 6 October 2026, introduced updates to employment and relevant taxation measures for Irish businesses. Understanding these adjustments is critical to staying compliant and managing payroll efficiently.
Most of the changes below take effect from 1 January 2027. Some details, including those on reporting requirements and pensions, will only be confirmed when the Finance Bill is published later this month, so figures and dates may be refined.
We will continue monitoring developments and publishing updates as new information becomes available throughout the year.
Minimum wage increase
One of the headline changes in Budget 2027 is the increase in the national minimum wage. Effective 1 January 2027, the minimum wage will rise by €0.79 to €14.94 per hour, up from €14.15.
What this means for employers:
- Automatic adjustments: Salaries for employees earning below €14.94 per hour must be adjusted from January’s payroll. Employers should review their payroll software and ensure compliance with the new rate.
- Cost implications: Businesses that employ minimum wage workers should prepare for potential cost increases and assess their budgets accordingly. Remember that employer PRSI is also changing (see below), so model the full cost of each hour worked.
- Pay differentials: A higher floor can put pressure on pay for employees just above minimum wage. Review pay scales and supervisory rates early.
- Communication: Let your employees know about these changes to keep them informed.
Income Tax and Universal Social Charge (USC) updates
Income tax changes
While the income tax rates remain unchanged at 20% and 40%, there are significant updates to tax bands and credits as part of a €1.3 billion personal income tax package:
Increase to the standard rate tax band
The standard rate tax band will rise by €2,500, meaning single individuals can earn up to €46,500 before entering the higher tax bracket. Proportionate increases will apply to married couples and civil partners: the band rises to €55,500 for a one-income couple, and up to €93,000 for a two-income couple (for a two- income couple up to 9,000 of an individuals band can be transferred to their spouse/civil partner)
Tax credit increases
The following tax credits will each rise by €125, bringing them to €2,125:
- Personal tax credit
- Employee (PAYE) tax credit
- Earned income tax credit
Universal Social Charge (USC) changes
Adjusted entry points for USC rates
The USC rates themselves are unchanged. In line with the minimum wage increase, the ceiling of the 2% band will increase by €1,600, from €28,700 to €30,300, so that full-time minimum wage workers are not pushed into the 3% rate. As a result, the 3% rate will apply to incomes between €30,301 and €70,044. The USC rates and bands from 1 January 2027 are:
| Income band | USC rate |
| €0 – €12,012 | 0.5% |
| €12,013 – €30,300 (up from €28,700) | 2% |
| €30,301 – €70,044 | 3% |
| Over €70,044 | 8% |
| Self-employed income over €100,000 | Additional 3% surcharge |
Business implications
- Payroll updates: employers must update payroll systems to reflect these changes in tax bands, credits, and USC rates.
- Employee take-home pay: the Government estimates that a worker earning €50,000 will pay more than €700 less in income tax and USC in 2027. Higher net pay could boost morale.
- Budget forecasting: businesses should consider the impact of increased disposable income on employee spending and workplace dynamics.
PRSI and employer cost updates
Employer PRSI is one of the most important areas for businesses to watch in 2027.
- Higher employer PRSI threshold: the weekly earnings threshold for the reduced employer PRSI rate will increase from €552 to €600 from 1 January 2027. A full-time employee on the new minimum wage (39 hours × €14.94 = €582.66 per week) will therefore remain within the lower rate band.
- Scheduled rate increases: all PRSI rates rose by 0.15 percentage points on 1 October 2026, bringing employer Class A PRSI to 11.40% (9.15% on the reduced rate) and employee PRSI to 4.35%. A further 0.15 point increase is already legislated for 1 October 2027, which will take employee PRSI to 4.5%. Payroll systems will need a second update part-way through the year.
Enhanced Reporting Requirements (ERR)
Budget 2027 also brought welcome news on payroll administration. Changes to be introduced in the Finance Bill will give employers the option to make ERR submissions either monthly or continue with the current real-time reporting. Employers should decide which approach suits their payroll cycle once the legislation is confirmed. Benefits that are treated as tax-free under the small benefit exemption are among the items that must be reported.
Small Benefit Exemption
Budget 2027 did not announce any changes to the small benefit exemption, so the enhanced rules in place since 1 January 2025 continue to apply. It remains a flexible and generous way to provide non-cash employee rewards.
What applies for 2027?
- The maximum annual tax-free benefit allowance remains €1,500.
- Employees can receive up to five non-cash benefits per year.
Example for employers
This exemption allows businesses to reward employees with vouchers or other non-cash benefits without additional tax obligations. For instance:
- An employer could issue five €300 vouchers to employees at different intervals during the year (e.g., January, April, July, October, and December).
Benefits for businesses
- Retention and motivation: these benefits can help improve employee satisfaction and loyalty.
- Cost-effective rewards: bonuses don’t have to be expensive for employers to give.
The Government also announced reviews in 2027 of the “cycle to work” and “tax saver” schemes, so watch for developments on other tax-efficient benefits.
Pension auto-enrolment and pensions
Auto-enrolment (My Future Fund) began on 1 January 2026, so 2027 is its second year of operation. It is now a significant payroll and governance consideration for many employers.
- Who is covered: employees aged 23 to 60 earning more than €20,000 a year who are not already in a qualifying occupational pension scheme.
- Contributions: during the early years, employees and employers each contribute 1.5% of gross pay (up to €80,000), with the State adding 0.5%. These rates are scheduled to increase in stages over time, so factor this into longer-term labour cost forecasts.
- Pension tax: the age-related factors used to value defined benefit entitlements for the Standard Fund Threshold will be revised from 1 January 2027, with details to follow in the Finance Bill.
Other measures relevant to business owners
- Corporation tax and reliefs: the “small company” threshold for preliminary tax rises from €200,000 to €350,000. The start-up relief is extended to 31 December 2030 and the Knowledge Development Box to 2032. The EII, start-up capital incentive, SURE and Angel Investor Relief are extended, subject to EU State aid approval.
- R&D tax credit: the first-year payment threshold rises from €87,500 to €105,000, and the subcontracting limit increases to the greater of 20% of internal qualifying R&D spend or €200,000.
- Capital gains tax: the standard rate falls from 33% to 31% for disposals on or after 7 October 2026 (development land stays at 33%). This is relevant for owner-managers planning a sale or succession.
- Capital Acquisitions Tax (CAT): the tax-free group thresholds increase from €400,000 to €420,000 for Group A (children), from €40,000 to €44,000 for Group B (siblings, nieces, nephews, grandchildren) and from €20,000 to €22,000 for Group C (all others), with the 33% rate on amounts above the threshold unchanged. This is relevant for family business succession and estate planning for owner-managers.
- Professional services withholding tax: personalised deduction rates will replace the flat 20% rate, subject to a commencement order.
- Fuel and vehicles: restoration of fuel excise has been postponed, with full restoration by 30 June 2027, and the carbon tax increase on auto fuels is deferred to 1 May 2027. VRT relief for electric vehicles is extended to 31 December 2028.
- Childcare: maximum childcare fees fall from €735 to €550 per month for children up to senior infants, which may help with staff retention and return-to-work decisions.
Budget 2027 also included a range of personal and household measures, such as social welfare increases and changes to individual tax credits. These are not covered here.
Key dates
| Date | What happens |
| 7 October 2026 | Capital gains tax rate cut to 31% takes effect |
| 1 January 2027 | Minimum wage of €14.94; new tax bands, credits and USC bands; employer PRSI threshold of €600 |
| 28 February 2027 | First step in the phased restoration of fuel excise |
| 1 May 2027 | Carbon tax increase on auto fuels |
| 30 June 2027 | Fuel excise fully restored |
| 1 October 2027 | Further 0.15 point increase in PRSI rates |
Key considerations for businesses
1) Compliance and preparedness
With most of these changes taking effect from January 2027, businesses must ensure their payroll systems and policies are updated. Here are some steps to take:
- Audit payroll systems: ensure all adjustments to minimum wage, tax bands, credits, USC rates and the employer PRSI threshold are correctly implemented, and diarise the October 2027 PRSI change.
- Review reporting: decide between monthly and real-time ERR submissions once the Finance Bill is published, and check your auto-enrolment processes.
- Communicate with staff: provide clear, concise updates to employees about how these changes will impact their pay.
- Seek professional advice: consult with your accounting or payroll provider to ensure compliance and to leverage any available opportunities.
Should you require any further guidance on these adjustments, please consider consulting our tax consultant for tailored advice.
2) Financial planning
Employers should account for these changes in their 2027 budgets:
- Labour costs: review the impact of higher minimum wages, increased PRSI rates, auto-enrolment contributions and potential increases in other salaries.
- Tax incentives: explore opportunities to maximise tax-efficient employee benefits through the small benefit exemption, and consider the R&D, start-up and investment reliefs where relevant.
Get in touch with Kinore
Budget 2027 introduces several measures to improve income levels and ease the cost of living, with notable changes to the minimum wage, income tax, employer PRSI and reporting. While these updates will enhance employee take-home pay, businesses must adjust payroll systems and financial plans.
By staying proactive and informed, businesses can ensure compliance and capitalise on the opportunities presented by these changes. For tailored advice and ongoing updates, don’t hesitate to contact us.
