Salary sacrifice arrangements

A salary sacrifice arrangement is an arrangement under which an employee forgoes the right to receive any part of their remuneration due under their terms or contract of employment, and in return their employer provides a benefit.

The conditions that must be adhered to are as follows:

• there must be a bona fide and enforceable alteration to the terms and conditions of employment
• the alteration must not be retrospective and must be evidenced in writing
• there must be no entitlement to exchange the benefit for cash

What is allowed?

Where an employee enters into an approved salary sacrifice arrangement, they will be regarded as having sacrificed a portion of their salary and will not be liable to PAYE, PRSI or USC on this amount.

The salary sacrifice arrangements that are approved by Revenue are restricted to the benefits listed below.

• Bus, rail or ferry travel passes issued by an approved transport provider
• Exempt shares appropriated under approved profit-sharing schemes (APSS)
• Bicycles and safety equipment provided under the Cycle to Work Scheme

What isn't allowed?

Where the salary sacrifice arrangement is not a Revenue-approved scheme, the employee will not be regarded as having sacrificed a portion of their salary. The employee is instead regarded as having applied a portion of their income to the benefit acquired, and remains taxable in full on their gross income under Schedule E.

This treatment applies if an employee forgoes a portion of their remuneration in return for anything other than an approved salary sacrifice arrangement by way of any of the following arrangements:

• changing the existing terms or contract of employment,
• creating new terms or a new contract of employment, or
• adapting a new practice, not documented in writing, relating to the terms and conditions of the employment.

Remuneration is not restricted solely to cash remuneration. It includes all forms of remuneration arising from employment. This includes bonus payments and any form of discretionary payment.

Examples of arrangements that are not allowed are set out below.

• An employee cannot receive part of their salary in the form of a gift voucher without tax arising. Any gift card given in replacement of salary will be fully taxable. An employee can however receive a gift voucher tax-free up to €1,000 outside of their salary entitlements under the small benefit exemption.
• Where an employee waives an entitlement or accepts a reduction in remuneration in exchange for a corresponding payment by their employer into their pension scheme, this is considered to be an application of income earned by the employee and as such the full amount remains taxable under Schedule E. For example, if an employee waives €10,000 of their salary to be put directly into a pension scheme instead, this €10,000 is fully taxable. Even if the sum had never reached the employee, it is taxable as if it had been paid directly to them.
• Any exempt employee benefit provided for the year before the claim will not be allowed. Specifically, where income is not paid during the year, such income cannot be taken into account for the purposes of an exempt employee benefit scheme provided during the course of the year. For example, an employee who is due a bonus in 2024 for reaching 2023 sales targets cannot use this 2024 bonus to enter into a salary sacrifice arrangement in 2023, e.g. a travel pass in 2023.
• Flexible Benefits Packages or FlexPlans may fall under the scope of the salary sacrifice legislation depending on the terms of the arrangement. In general, the scheme will require an employee to agree to revised terms in relation to their terms or contract of employment, whereby a benefit is provided in return for a reduction in take-home pay. The scheme may instead allow an employee to take an additional payment of emoluments in lieu of non-cash benefits or perquisites. Such arrangements should be reviewed separately in order to determine the treatment and whether they fall under the scope of the salary sacrifice legislation.
• Where an exempt employee benefit is provided to a connected person, e.g. their spouse, rather than the employee, it will not be treated as an exempt employee benefit and instead will be treated as salary which has been applied by the employee and should be taxed accordingly.

Further information is available at https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-01-01k.pdf.

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