Why Irish Employers Should Avoid Agreeing to Net Pay

Hiring new staff is an exciting time for any business. You’re bringing in new talent, injecting energy into your team, and investing in your future growth. But amid the excitement, it’s vital to get the basics right, especially when it comes to pay.

One common pitfall we see Irish employers make, particularly in SMEs or rapidly growing firms, is agreeing to pay new hires a net amount. This means committing to what the employee takes home after tax, rather than setting a clear gross salary.

At first glance, net pay agreements seem convenient. They provide the employee with a precise, bottom-line figure they can expect in their bank account each month. It can feel like a more straightforward way to communicate salary and seal the deal.

But from an employer’s perspective, this is a risky and potentially costly approach. Below, we’ll explore why you should always agree to pay in gross terms, and how a professional outsourced payroll partner can help you avoid costly missteps, reduce admin, and stay fully compliant with Irish legislation.

When you agree to a net pay amount, you’re committing to cover whatever tax deductions are needed to get the employee to that take-home figure, regardless of what Revenue calculates as their due taxes.

That means you absorb the risk of any changes or errors in PAYE, PRSI and USC. If Revenue reassesses your employee’s tax credits, changes their tax band, or if the employee has other income sources, you pay the difference to maintain their net income. This can quickly spiral into unexpected costs.

For example, if an employee underdeclares another source of income or loses certain tax credits, the employer must pay more in tax to keep their net salary whole.

Running a business requires tight financial planning. You need to know what your monthly outgoings are, and payroll is likely your most significant expense.

When you agree to net pay, your actual cost per employee becomes unpredictable because taxes and social charges can fluctuate.

Gross pay agreements offer:

• Clear budgeting
• Transparency for both parties
• Control over employer obligations like PRSI

Net pay, on the other hand, turns your payroll costs into a moving target.

For example, an agreed net salary of €3,000 could cost you €4,500 one month and €4,900 the next, without you having any say in the matter.

In Ireland, employment contracts and payroll systems are based on gross pay as the standard. The PAYE system is designed to handle tax deductions automatically, provided you report and pay through gross earnings.

Net pay agreements can:

• Complicate your payroll setup
• Create inconsistencies in financial reporting
• Raise red flags with auditors or potential investors

It may also suggest to employees (and Revenue) that you’re operating informally or lacking proper payroll systems, which can undermine trust in your business practices.

When you commit to net pay, any change in an employee’s tax status can result in confusion or conflict. If their tax liability increases, but you’ve agreed to cover the difference, you bear the cost, potentially for years to come.

This can lead to:

• Disagreements over contract interpretation
• Legal disputes
• Financial stress for both the employer and the employee

By sticking to gross pay, the employee’s tax position is between them and Revenue, and your responsibility is simply to report and remit the correct figures.

To avoid unnecessary risk and ensure your payroll remains compliant and cost-effective, always:

• Agree on salary in gross terms
• Issue clear contracts that reflect this
• Use up-to-date payroll software or services that integrate with Revenue

However, even when following best practices, Irish payroll can still be surprisingly complex, especially when you’re growing rapidly or managing multiple employee types (e.g., part-time, remote, or contract staff).

That’s where outsourced payroll services come in.

• Accuracy: Payroll errors can result in under- or overpayment to staff and incorrect reporting to Revenue. We ensure everything is calculated correctly — every time.
• Efficiency: Free your team from the admin burden of processing payroll, keeping up with legislation, and handling employee queries.
• Flexibility: Whether you have one employee or 100, our service scales with you.
• Confidentiality: Payroll data is sensitive. We protect your team’s information with enterprise-grade security and processes.
• Expertise: We stay up-to-date with every budget change, tax update, and Revenue regulation — so you don’t have to.