Budget 2025: Key Employment, Social Welfare, and Taxation Changes for Businesses in Ireland

The Irish government’s Budget 2025 announced updates to employment, social welfare, and relevant taxation measures for Irish businesses. Understanding these adjustments is critical to staying compliant and managing payroll efficiently.

We will continue monitoring developments and publishing updates as new information becomes available throughout the year.

One of the headline changes in Budget 2025 is the increase in the national minimum wage. Effective 1 January 2025, the minimum wage will rise by €0.80 to €13.50 per hour.

What this means for employers:

• Automatic adjustments: Salaries for employees earning below €13.50 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.
• Communication: Let your employees know about these changes to keep them informed.

Income tax changes

While the income tax rates remain unchanged at 20% and 40%, there are significant updates to tax bands and credits:

Increase to the standard rate tax band

The standard rate tax band will rise by €2,000, meaning single individuals can earn up to €44,000 before entering the higher tax bracket. Proportionate increases will apply to married couples and civil partners.

Tax credit increases

The following tax credits will each rise by €125, bringing them to €2,000:

• Personal tax credit
• Employee tax credit
• Earned income tax credit

Universal Social Charge (USC) changes

Reduction in the 4% USC rate

The 4% rate will decrease to 3% starting 1 January 2025.

Adjusted entry points for USC rates

In line with the minimum wage increase, the 3% USC rate entry threshold will increase by €1,622. As a result, the 3% rate will apply to incomes between €27,382 and €70,044.

Business implications

• Payroll updates: employers must update payroll systems to reflect these changes in tax bands, credits, and USC rates.
• Employee take-home pay: net pay increases for employees could boost morale.
• Budget forecasting: businesses should consider the impact of increased disposable income on employee spending and workplace dynamics.

The small benefit exemption has been updated to provide greater flexibility and generosity for non-cash employee rewards.

What’s changing?

1. The maximum annual tax-free benefit allowance will increase from €1,000 to €1,500.
2. Employees can now receive up to five non-cash benefits per year, an increase from the previous limit of two.

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.

1) Compliance and preparedness

With these changes taking effect from January 2025, businesses must ensure their payroll systems and policies are updated. Here are some steps to take:

1. Audit payroll systems: ensure all adjustments to minimum wage, tax bands, credits, and USC rates are correctly implemented.
2. Communicate with staff: provide clear, concise updates to employees about how these changes will impact their pay.
3. Seek professional advice: consult with your accounting or payroll provider to ensure compliance and to leverage any available opportunities.

2) Financial planning

Employers should account for these changes in their 2025 budgets:

1. Labour costs: review the impact of higher minimum wages and potential increases in other salaries.
2. Tax incentives: explore opportunities to maximise tax-efficient employee benefits through the updated small benefit exemption.