Dáil Éireann Debate, Thursday - 4 October 2018
225. Deputy Brendan Griffin asked the Minister for Employment Affairs and Social Protection if the calculation method for an employee's PRSI contribution for those earning between €352.01 and €424 will be simplified; if the entry level will be increased to €424 in view of the fact that small businesses with few employees are finding it difficult to calculate; and if she will make a statement on the matter. [40431/18]
View answerIn general employees pay PRSI at the Class A rate of 4% of their weekly earnings. For weekly earnings of €352 or less no PRSI is charged. Once weekly earnings exceed €352, Class A PRSI at the rate of 4% is charged on all earnings. Prior to the introduction of the PRSI credit in January 2016, the weekly PRSI charge for employees whose earnings for the first time exceed €352 increased from nil to €14.08. This "step effect" created a significant poverty trap for those who received an increase in their earnings or who increased their engagement in the workforce.
The PRSI credit was introduced in 2016 to address this "step effect" by reducing the weekly PRSI charge from €14.08 to €2.08, at earnings of €352.01. For weekly earnings between €352.01 and €424.00, the maximum weekly PRSI credit of €12 is reduced on a tapered basis. At earnings of €424.01, the credit is exhausted.
The fact that the PRSI credit applies between €352 and €424 means that the measure is targeted at those in the earnings range directly affected by the previous "step effect" and ensures the cost efficiency of the measure. It is estimated that the credit will have a cost of €18.3m in 2019. While it is appreciated that there is a calculation involved in the determination of the level of credit to apply to individual employees, this calculation is fully explained on the Department's website, www.welfare.ie and in the Department's information guides and leaflets.
Increasing the PRSI employee threshold to €424 would lead to the creation of a new "step effect" where no PRSI charge would arise at €424 but an increase in pay would mean a charge of €16.94 would arise. This new, higher, "step effect" would create a new poverty trap which would have to be alleviated by the introduction a new PRSI credit. This would incur further costs to the Social Insurance Fund.
Increasing the employee PRSI threshold to From €352 to €424 would cost €25.8m and affect 102,000 employees.
I trust this clarifies the matter for the Deputy.
