Wages - Illness Benefit (Disability Benefit) (Maternity Benefit)

What is Illness Benefit?

Illness Benefit is a payment for insured people who cannot work due to illness.
It replaced the payment previously known as Disability Benefit from 2 October 2006.
Illness Benefit is made up of a personal rate for the employee with extra amounts for any dependent adults/children.

What about Illness Benefit and Tax?

The Department of Social Welfare issues all Illness Benefit payments without deducting any tax.
In Budget 2012 it was announced that Illness Benefit will be taxed from the first day of payment; previously the first 6 weeks (36 days) were exempt from tax. This change is effective from 1 January 2012.

Paul an employee of your company has been ill and receives Illness Benefit made up as follows;

Paul’s Personal Portion € 148.80
Dependent Spouse € 98.70
Dependent Children € 95.00
Total Illness Benefit € 342.50

Note: Illness Benefit (excluding any increases for child dependents) is considered as income for tax purposes and it is taxed from the first day of payment.

Since January 1st 2018 Revenue now collect tax due on these payments by reducing the employee's tax credit and rate bands by the amount of the benefit received. Just to note Benefit payments are not subject to USC or PRSI. 
How Should the Employer process Illness Benefit?

From the point of view of an employer there are a number of ways in which Illness Benefit can be treated;

1. Employer does not pay any wages to the employee during the period of illness.
2. Employer pays the employee a payment (a top-up), and the employee retains the Illness Benefit payment.
3. Employer pays the employee gross pay less the benefit payment for taxable pay and adds a non taxable addition to account for the benefit payment. In this case the employer receives the benefit payment directly.

The following sections explain how to use CollSoft Payroll in each of these scenarios.

1. Employer does not pay any wages to the employee during the period of illness.

In this case, the employer does not enter any wages into CollSoft Payroll while the employee is out of work.

2. Employer pays the employee a payment (a top-up) and the employee retains the Illness Benefit payment.

In this case the employer is paying the employee a portion of their normal wage while the employee receives their Illness Benefit. This top up is treated as a normal wage payment and is entered in CollSoft Payroll in the usual manner. 

3. Employer pays the employee their full wages as normal and recovers the Illness Benefit cheque from the DSP.

In this scenario, the employer is paying the employee their full wage and the employee is handing over the benefit payment directly to the employer.

To process this in CollSoft Payroll the user needs to reduce the employee’s salary by the amount of the illness benefit and enter the illness benefit as tax free addition in payroll.

If the benefit payment is sent directly to the employer than the employer must account for this payment when processing payroll. The best way to do this, is to set up a non taxable addition to show the benefit amount. The regular gross pay can be reduced as agreed with the employee.

To set up a new addition in payroll, open the company details screen (Click Company and Edit) and select additions. You can rename any addition name by typing in a new heading. (This new heading will appear on the payslip, this should be a heading the employee understands)

In this case the addition is tax allowable (no tax applies) – You should clear the boxes under the headings ‘Apply Tax, Apply PRSI (Employee & Employer) and Apply USC’. This way no tax will apply to the addition. The PAYE tax is applied when the employee tax details are updated.

The benefit payment  - Is subject to PAYE tax and is exempt from USC and PRSI tax. An employee's standard rate cut off and tax credits are reduced to deduct the PAYE tax. Revenue will issue a new RPN with the updated tax details.

If you want the addition amount to appear automatically in each pay period enter the addition amount under the employee’s details screen. If it is a once off payment only enter the addition amount in the employee wage screen.

As this is a non tax addition you must set a category for ERR purposes - Click Company on the very top menu and select Revenue Enhanced Reporting settings. You should see the new addition Illness benefit - click on the category field across from the addition name and select Not Reported from the drop down menu.

Creation date: 02/01/2015 23:46      Updated: 05/04/2024 12:33
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