During our internal audits of domestic Irish Payrolls, we frequently identify a common misunderstanding within Payroll departments regarding the structuring of repayments for overpayments to Employees.
If repayments span over 2 separate tax years, incorrectly structured repayments might trigger a Revenue Audit or Revenue compliance intervention.
Here are the two most common scenarios:
Scenario 1: An overpayment to an Employee occurs in August 2024 on a monthly Payroll, with a gross overpayment amount (before tax) of 1,000 euros. The Employee agrees to repay this amount in 4 instalments starting in September, with each instalment being 250 euros gross per month from September to December.
In this instance, the Employer should document the repayment plan and obtain the Employee’s signature. A gross amount of 250 euros per month should be deducted from the Employee’s monthly payments through Payroll over 4 months.
Scenario 2: An overpayment to an Employee occurs in August 2024 on a monthly Payroll, with a gross overpayment amount (before tax) of 1,000 euros. The Employee requests to extend the repayments over 5 instalments, starting in September.
If the Employee cannot complete the repayment in 2024, note that a gross amount of 200 euros can be deducted from the Employee’s salary in 2024 (September to December inclusive). However, in January 2025, 200 euros must be deducted from the Employee’s Net pay.
It is highly recommended to notify the Employee about the net implications for January if they choose to spread repayments over 2 different tax years. The Employer should carefully document the repayments and ensure both parties agree by having the Employee sign the documentation.
At the end of January Payroll, a letter outlining the circumstances of the overpayment and the payment agreement should be issued to the Employee.
Regarding Employee PAYE and USC refund:
The Employee should contact Revenue via myAccount with the letter to request a PAYE and USC refund.
Regarding Employee PRSI refund:
An email to the Department of Social Protection (DSP) should be sent, along with a copy of the letter explaining the situation and requesting an Employee PRSI refund.
N.B.: Both EE PAYE/USC and EE PRSI refunds will occur outside the Payroll process.
Regarding Employer PRSI refund:
At the end of the January Payroll, an email should be sent to the Department of Social Protection explaining the circumstances for the Employer PRSI refund.
DSP email to be used: PRSIrefunds@welfare.ie – for both: Employee and Employer refunds.
DSP PRSI Refund Section phone: 01 673 2586
DSP might ask to fill in REF1 (for Employee) and REF2 (for Employer) forms to process the PRSI refunds due.
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