The tax and PRSI treatment of share based remuneration has significantly changed for 2011 resulting in increased tax cost and administrative burdens for awarding employees by way of share incentive schemes. The changes include the following:

• All share awards granted and share options exercised on or after 1 January 2011, whether through Revenue approved or unapproved schemes, will be subject to both employer and employee PRSI (subject to a “grandfathering” rule which exempts pre-existing schemes that were the subject of a written agreement prior to 1 January 2011)
• All share awards granted and share options exercised on or after 1 January 2011, whether through Revenue approved or unapproved schemes, will be subject to the Universal Social Charge (USC) in the hands of the employee. The rate will be 7% in most cases and there is no “grandfathering” rule for pre-existing arrangements
• Income tax and USC on share awards (except share options) will be collected by the employer through the PAYE withholding system
• Income tax and USC on share option gains must be paid by the employee to Revenue under self-assessment within 30 days of the date of exercise of the option. The employer accounts for PRSI on the share options but where the option holder is no longer an employee, the employer can elect to pay only the employer PRSI (10.75%).  Where an employer makes this election, the option holder (former employee) will have a liability to pay the PRSI due

Employers should:

• Budget for the impact of the 10.75% employer PRSI cost on future share arrangements
• Advise employees of the impact of the changes. The “tax exempt” Revenue approved schemes such as Save As You Earn (SAYE) and Approved Profit Sharing Schemes (APSS) will no longer be “tax exempt” as they are within the scope of both PRSI (subject to “grandfathering”) and USC
• Ensure systems can track and promptly identify when a PRSI charge is triggered by an employee (or former employee).  Share arrangements will need to be separated into those which can benefit from the PRSI “grandfathering” rule and those which cannot

It may be an opportune time for employers to review overall remuneration packages for employees, including senior executives.

Contributed by Niamh Keogh.

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