Understanding pay covers how workers earn income, how employment taxes are calculated in Ireland, and how to read a wage slip. In the Junior Cycle exam, you will calculate gross pay, the tax due after tax credits, and net (take-home) pay.
Calculating Gross Pay and Overtime
Gross pay is the total income an employee earns before any deductions are taken away. Employees earn income through standard hours, extra hours, or sales performance.
- Basic pay is the agreed payment for working normal contractual hours.
- Overtime is extra pay for working hours beyond the standard week.
- Time-and-a-half means paying the normal hourly rate multiplied by 1.5.
- Double time means paying the normal hourly rate multiplied by 2.
- Commission is extra income calculated as a percentage of sales achieved.
Gross Pay = Basic Pay + Overtime + Commission
If an exam question gives a weekly wage rather than an hourly rate, find the hourly rate first: Hourly Rate = Basic Wage ÷ Standard Hours. For example, a basic wage of €420 for 35 hours gives €12 per hour (€420 ÷ 35).
Statutory and Voluntary Deductions
Deductions are amounts taken directly out of gross pay. Irish employment law divides deductions into two distinct types:
| Deduction Type | Legal Status | Examples |
|---|---|---|
| Statutory deductions | Compulsory payments required by law | PAYE, PRSI, and USC |
| Voluntary deductions | Optional payments chosen by the employee | Health insurance, union fees, savings, private pensions |
- PAYE (Pay As You Earn): the system where your employer takes income tax out of your wages and sends it to Revenue to help pay for services such as schools and hospitals.
- PRSI (Pay Related Social Insurance): a compulsory payment that funds social welfare benefits, including the State Pension and jobseeker payments.
- USC (Universal Social Charge): a tax charged on your total income, which helps pay for public services.
All of these amounts are deducted at source, which means the employer takes them out of your pay packet before transferring the remainder to you.
Tax Credits and Calculating PAYE
A tax credit is taken off the tax you owe, not off your pay. Work out the tax first, then take the credit off it.
To calculate PAYE payable, follow these three steps in order:
- Calculate Gross Tax by multiplying gross pay by the income tax rate given in the exam question:
Gross Tax = Gross Pay × Tax Rate
- Adjust the annual tax credit to match the wage slip period:
- Weekly Tax Credit = Annual Tax Credit ÷ 52
- Monthly Tax Credit = Annual Tax Credit ÷ 12
- Subtract the tax credit from gross tax to find the PAYE payable:
PAYE Payable = Gross Tax − Tax Credit
If the tax credit is bigger than the gross tax, the PAYE is nil — you cannot have a minus figure for tax. Note that PRSI and USC are calculated directly as percentages of gross pay, and tax credits do not reduce them.
Wage Slips and Net Pay
By law your employer must give you a wage slip listing your pay and every deduction for that pay period. A wage slip must show the employee's name, PPS number, the date of the pay period, gross pay, each deduction, and net pay. The PPS number (Personal Public Service number) is your unique identity number used by Revenue and the Department of Social Protection to record your tax and PRSI.
To find the final take-home pay:
- Total Deductions = PAYE + PRSI + USC + Voluntary Deductions
- Net pay = Gross Pay − Total Deductions
Net pay is the actual cash or bank transfer the employee receives.
Key terms
- Basic Pay
- The agreed payment an employee receives for working standard contracted hours before any extra pay or deductions.
- Overtime
- Extra pay earned by working hours beyond standard contractual hours, usually paid at a higher hourly rate.
- Gross Pay
- The total earnings an employee receives before any statutory or voluntary deductions are removed.
- Statutory Deductions
- Compulsory deductions required by Irish law, consisting of PAYE, PRSI, and USC.
- Tax Credit
- A state allowance that reduces the calculated gross tax liability euro-for-euro.
- PAYE
- Pay As You Earn, the Irish system where employers deduct income tax directly from employees' wages.
- PRSI
- Pay Related Social Insurance, a compulsory payment that funds state social welfare benefits and pensions.
- USC
- Universal Social Charge, a compulsory tax charged on gross income that helps fund public services.
Check yourself
Sarah earns a basic wage of €320 per week plus 8% commission on sales. She sells €870 of goods. Calculate her gross wage.
Commission = €870 × 8% = €69.60. Gross Wage = €320 + €69.60 = €389.60.
If an employee earns €14 per hour, what is their overtime rate at time-and-a-half?
€21.00 per hour (€14 × 1.5).
Name the three statutory deductions found on an Irish wage slip.
PAYE, PRSI, and USC.
An employee has gross tax of €115 and a weekly tax credit of €50. What PAYE do they pay?
€65.00 (€115 − €50).
An annual tax credit is €3,640. What is the weekly tax credit?
€70.00 per week (€3,640 ÷ 52).