Income tax payable on unpaid leave - Is this correct?

sonyvision

So my employee has offered me the chance to buy 5 days additional unpaid leave, as I'm in the higher tax bracket 40% I went to apply. I later found out this would be deducted out of my net pay not gross pay. I checked revenue and unable to find the correct tax treatment. Here is an example.

I earned €2,000 a weekly gross (I don't but this keeps it simple) which is equal to net weekly income of €1,260 according to PWC on a tax calculator.

If I take 5 days additional paid leave my employer would say I earn €2,000/ 52 weeks and deduct it on a weekly basis = €38.5 a week deduction out of my net pay (so I basically pay back €2,000 to my employeer). I can choose the dates I want off.

However if I take 5 days unpaid leave in a block which my employer allows they will reduce my weekly pay to 0 that week (gross) but my (net) take home to me is down €1,260.

So here is the difference, if I buy 5 days from my employer it costs me €2,000 out of my pocket, but if I take 5 days unpaid leave as a block it only costs me €1,260 out of my pocket in the same year.

Does anyone have the revenue tax guidelines on the above treatment of purchasing additional paid time off. My company operates in the UK/Ireland and the treatment in UK is gross deductible but Ireland they are doing it net. I'm not paying an additional €700 for 5 days off if I don't have too.

*The €1,260 value changes slightly to €1,242 as my gross pay for the year becomes 51 weeks at €2,000 not 52 weeks at €2,000.

Interest to know how it's treated in comes you work in.

Terrontress

I don't have the guidelines, but would always expect that it comes from gross.

You are not taxed based on your contracted salary, but on the amount which you are paid. Work five days fewer, earn €2k less, get taxed on €98k instead of €100k.

I would think that in order to make a deduction from net, your employer would have to credit an account somewhere to reimburse payroll, or something wildly complicated.

Ezeoul

I take 4 weeks unpaid leave, pro-rata over 52 weeks, and it is taken as a deduction from gross before tax, prsi etc.

Look up the civil service shorter working year scheme, and you may find guidelines, but I know this is how it is done in the CS.

CramCycle

Most places take it from gross. Less Employers insurance, basically simpler. My employer doesn't like it unless it's a large block as there can be pension issues or if you are a public servant, they might delay your increment by the week. In theory you can take it from net as a purchased deduction but it is a bizarre way to do it, effectively they are paying you for the five days and then charging you for the time so you are working those five days but an external party (yourself) has rented you for the 5 days. Might be simpler for their accountant but very inefficient fiscally for everyone else.

Allinall

Deducting it out of your net pay is completely wrong, and possibly illegal.

It should be the value of your gross pay that is deducted, whether it be on a weekly basis pro- rata, or all in one go. Either way you will get the full tax benefit.

sonyvision

I know what your all saying, its normally deducted Gross which I think is the right way. I'm dealing with the standard HR person who is working with (computer says no) mentality. That's why I'm seeking revenue guidelines as they keep telling me its how they are been told to process it.

Mrs OBumble

https://www.boards.ie/discussion/comment/122160025#Comment_122160025

Not necessarily.

if it's treated as a benefit you have purchased (the right to do no work for five days) rather than actually being on unpaid leave (so not qualifying for pension, PRSI credits etc that week either) - then there COULD be a way to take it from nett.

But as the OP has noted, the price of this benefit may not be the same as gross pay minus tax.

CramCycle

https://www.boards.ie/discussion/comment/122160026#Comment_122160026

There are no revenue guidelines, it is whatever the company want to do. You don't have to take the unpaid leave is the alternative. It's unusual, inefficient and broadly stupid IMHO but it's not illegal. The other way to look at it is that your pro rata holidays should be reduced going the gross pay way. Let's say your holidays are 26 days per annum, you are now working one week less so your holidays should be pro rata reduced by half a day. It's not quite as simple as being made out.