At a time of labour shortage, employers may be surprised to learn that there are available a range of tax breaks, and subsidies, designed to encourage the creation of new jobs to help the long-term unemployed back to work. It is likely that not all employers who are eligible for these tax breaks or subsidies check out their entitlement.
One reason why employers may not think of checking out the availability of tax relief or subsidies for taking on a new worker may be sheer relief at finding one to fill a vacancy! Nonetheless, there are a number of valuable schemes available. A review by the Tax Strategy Group (a Civil Service committee) prior to the last budget reported that they had been built up in piecemeal fashion €in response to demands for action at budget time€. The Tax Strategy Group review of the schemes does not exude enthusiasm. It says €It would seem advisable not to add to the list of interventions in this area with further schemes but to concentrate on straightening out the current system. - - Perhaps the main contribution which the tax system can make in this area is to continue the process of significant reductions in the burden of taxation on employment especially at low income levels. This would suggest concentrating resources on the general tax package.€
Despite this lack of enthusiasm for the schemes, employers should examine them.
· PRSI exemption.
Employers can obtain a two year PRSI contribution holiday. The principal (but not only) requirement is that they take on a full time additional worker and maintain the net increase in employment for the two years that the exemption lasts. It might be expected that a scheme like this would require that the worker be taken off the long term unemployed list. This is not so! It can apply to any worker under the age of 23 years who is taking up employment for the first time. Therefore it can apply to many graduates moving from college to their first employment. It is also available in relation to persons on the live register for at least 13 continuous weeks, and certain other classes of disadvantaged persons. In 1998 canny employers were availing of this exemption in respect of 20,000 workers and it was estimated that the exemption was worth £900 per job to the employers in question.
· Job Start involves a direct payment of a subsidy to employers, as opposed to a tax relief. The requirements are that the employer creates a job for an employee who has been three years on the unemployment list. Some other categories of disadvantaged persons are also eligible. FAS administers the scheme and can subsidise up to 2,000 places. The subsidy in question lasts for a year in respect of each eligible person, and involves a payment to the employer of £80 per week. This payment is tax free, whereas the wages paid to the employee are tax deductible.
· The Revenue Job Assist scheme provides a double tax deduction for wages! Double rent allowance has been a roaring success, but one hears much less about double wage allowance.
Additionally the employee receives special tax allowances in his first year of employment (£3,000 plus £1,000 for each child). These allowances taper off over a three year period. He also retains his medical card for three years and various other social welfare benefits are retained for three years where employment income is less than £250 per week.
The employer€s double deduction can last for up to 36 months. To avail of these incentives, the employee must have been unemployed for at least 12 months and in receipt of the appropriate social welfare payments. Surprisingly, up to September 1998 only 645 claims had been made.
This scheme would be particularly attractive to a sole trader or a partnership, where the top marginal income tax rate applying to profits is 46%. At that tax rate, the tax saving due to the double deduction means that the employee is costing the employer almost nothing in terms of wages or PRSI.
· The back to work allowance scheme is focused on the potential employee, rather than on the potential employer. It is focused on those unemployed for at least 12 months and who are at least 23 years of age. Its broad thrust is to permit them to retain their social welfare payments and benefits for a period of time, the social welfare payments being phased out over three years. The Community Employment Scheme operated by FAS is also employee focused and designed to ease the long term unemployed back into an employment environment by means of social welfare type payments.
Generally the creation of a single new job cannot attract more than one of the schemes but an exception to this is the fact that the PRSI exemption can be combined with some of the other schemes.
Whatever the long term future of these schemes, employers should be more conscious of them both in terms of exploring the opportunities to create jobs and ensuring that they are claiming the reliefs and subsidies that they may already be entitled to for jobs created. |
John Bradley is head of KPMG€s Personal Financial Services Division.
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| Article appeared in the June 1999 issue.
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