PRSI Overview

Social Insurance & Levies

The collection of social insurance and levies is undertaken by the Revenue Commissioners.  The social insurance system itself is administered by the Department of Social Protection.

Social insurance and levy payments apply over and above tax.  They apply generally to the whole of income.  There are no allowances.  Payment is mandatory.  The collection is through PAYE for employees and through the self-assessment tax system for traders.

There are a number of classes of contribution.  Correspondingly, persons who make sufficient contributions in a particular class are entitled to non-means-tested benefits on certain occasions.  These include sickness, disability, retirement, unemployment etc. Self-employed contributors pay less and are entitled to less benefits.

Social Insurance Fund

The amount of monies collected through social insurance is very significant.  This is because there are both employer and employee contributions.  Together they come to approximately 18% of total income. Employers’ contributions are less visible as they are paid over and above the salary rather than out of the salaries.

Notionally the funds are paid into the social insurance fund. Although monies are paid into the social insurance fund there is no formal segregation of funds nor investment for the purposes of future pensions.  The obligations are met by government on a pay as you go basis.

Shortfalls in the fund are met by the Exchequer. The social insurance fund is not specifically allocated for social insurance benefits.  In many respects the contributions become part of general government revenue and the benefits are part of government expenditure.

Formerly the  pay related element in the level of benefits was more significant than now applies.  In the present day the benefits received are largely flat in nature and do not increase based on the level of former income (and thereby the level of former contributions).

Many of the more modern level of benefits are only marginally higher than the equivalent means tested social welfare benefits which apply where the person has not made the requisite contributions.

Contributions

Most persons in receipt of income over 16 years of age and under pensionable age of 66 must pay social insurance contribution. This is PRSI.

Employees pay Class A contributions.  Employees Class A are insured for State pension, widow’s pension, deserted wife’s benefit. Illness benefit, invalidity benefit, jobseekers benefit, adoptive leave, occupational injuries benefit, health and safety benefit, treatment benefit, debt grant, maternity benefit.

The employee’s contribution is 4% and employer’s contribution is 10.75%, where weekly income is less that  €356, a  8.5% employer’s rate applies.

Civil servants play a modified class with fewer benefits.

Self-employed persons and voluntary contributors have fewer benefits. Self-employed contributors receive widows and orphans contributory State pensions, maternity benefit and certain other benefits.

Self-employed persons pay 4%.  The rates apply to a very broad category of income.  There are no allowances.

There  are various caps and levels associated with contributions.  In the Financial Crisis, there was a tendency to raise and remove these caps for Revenue raising purposes.

Levies

In addition to PRSI there are a number of other levies.  There have been various categories of levy over the years.

Formerly an employment and training levy applied between 1981 and 1999.  A health levy applies and is collected as part of the social insurance scheme through PAYE.  It is used partly towards the Department of Health.  0.7% of employee’s contribution is paid towards a national training fund under the control of the Minister of Enterprise, Trade and Employment.  This is dedicated towards training and up-skilling.

There had been income levies at several times in the past.  An income levy was introduced in 2008 as an emergency revenue raising measure.  It was extended very significantly  as a Revenue raising measure. It was replaced by USC in 2011.

Benefits

There is no guarantee from the State that particular levels of benefits will be preserved or indeed that particular benefits will be preserved at all.  The entitlement to benefits depend on the position as laid down in the Social Welfare Act.  Each year there is a Social Welfare and Pensions Act which amends the legislation.  This is passed in tandem with the Finance Act which deals with revenue raising.

Therefore although contributions are made for the notional purpose of qualifying for certain benefits there is no guarantee beyond a political guarantee that such benefits will ever be available or will be paid.  The so called pension’s time bomb has been commonly discussed.

Separate to social insurance there are means tested benefits available which are paid entirely by the State.  These benefits parallel the equivalent contributed benefits,  in some cases. They include non-contributory State pension, non-contributory widow / widower’s pension, lone parent allowance, jobseekers allowance, pre-retirement allowance, supplementary welfare allowance, family income supplement, carer’s allowance, rent allowance, disability allowance.

Employee v Self Employed

The categorisation of a person as an employee or self-employed (trader) is critical in social insurance.  If a person is an employee then social insurance must be paid on his behalf by the employer and must be collected from the employee through the PAYE system.

As with income tax the consequence of misclassifying an employee are severe.  The employer may have to retrospectively pay all contributions together with penalties.

The Department of Social Protection can decide that a particular individual is in insurable employment and an employee.  A Social Welfare Deciding Officer may decide the facts.

There is an appeal through an Appeals Officer.  Issues in relation to employment or self-employment are frequently the subject of such decisions and appeals.  The matters can be referred from appeal to the Courts on a point of law.

Directors

Company directors may be employees in the same way as other employees.  If they are not employees then they are subject to social insurance as self-employed contributors.

If a director controls a company it is likely to be in a better situation to show that it is an independent contractor.  Where the director does not control the company the totality of the circumstances would need to be considered to determine whether the director is an employee of the company.

Administration

Social Welfare Inspectors monitor and investigate compliance with social insurance.  They may carry out an investigation in relation to any claim.  They have powers to enter premises, inspect records, take statements and ask questions.

Records must be produced to a Social Welfare Inspector.  Failure to do so is an offence.  A Social Welfare Officer may be accompanied by a member of An Garda Siochana or Customs and Excise in the course of making investigations.

Inspectors authorise officers.  They serve notices on financial institutions requiring information which is relevant to a possible contravention of legislation.

Employers must maintain records of periods of employment and contributions.  They must be recorded at the time the contributions were made.

Compliance

Most failures of compliance with social insurance are criminal offences.  Where directors, secretaries or managers of companies help or are neglectful in relation to the offence they themselves may be prosecuted.  If they show that the matter was done without their knowledge and that they exercised due care this is a defence.

It is a further offence to keep and maintain proper records.  Any failure to correctly record earnings or to manipulate earnings so as to provide for different social insurance contributions is an offence.  There is power to publish fines or penalties imposed for social insurance offences.

If social welfare payments are made to which an employee is not entitled because of failure to keep records or because of failure to notify the Department that an employee has started to work the employer can be liable to repay the payments received by the employee while in employment.

Where an employee does not have social welfare entitlements that he would otherwise be entitled to because of an employer’s failure to pay the insurance contributors the employee can recover the payments by Court proceedings or the Department of Social Welfare may do so on the employee’s behalf.