Cash payments - pension consequences ?

K

Kandy

Guest
Hi,

I’am currently in PAYE employment on a salary of €55K.
I have been offered a job by the owner of a successful private company and the salary on offer consists of : (a). Taxable element of €40K + (b). Cash of payment €12K per annum. The pension contribution by the employer will be 10% of my gross taxable income (€40K) into a defined contribution scheme.

This scenario is strange to me and I have concerns as to the impact such an arrangement would have on my final pension (will reach 65 in 10 years time) , as my taxable income is different to my total income ? Can you help outline some of the Pros & Cons of such an offer / method of payment and the possible consequences for me down the road ?

Many thanks,

Kandy
 
Kandy said:
(a). Taxable element of €40K + (b). Cash of payment €12K per annum.
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(b) is just as assessable for income tax as (a). The employer is (as far as I know) legally obliged to deduct tax/PRSI on it. If they don't then it's still your responsibility to declare it. Sounds like a remuneration package hinged on tax evasion to me. I would avoid this and the employer like the plague if I was you. If they engage in such remuneration practices who knows what other dodgy practices they get up to.
 
As regards the implications on your pension, there are many. If by "final pension" you mean the State Contributory pension, a reduction in basic salary will not affect your entitlement as long as your PRSI contributions are continued. But if your prospective employer engages in tax evasion, how will you know if s/he's actually paying your PRSI contributions? Or registering you an as employee at all with the appropriate authorities?

If, by "final pension" you mean a private Occupational Pension Scheme, then what you'll get at retirement depends entirely on what type of scheme it is. But again - how will you know if your employer is even paying the required contributions to the pension scheme?

Walk away.
 
What type of pension arrangement do you have in your current employment Kandy?

I would not think it is as black and white as the other replies to date.
 
The person never said it was a cash in hand payment.

It could be an annual bonus (taxable) or annual pension top-up direct from employer (not taxable) - it may be just a way of reducing the pensionable salary.

It could also be in respect of expenses.
 
CapitalCCC said:
The person never said it was a cash in hand payment.
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OK - they said "cash payment".
It could be an annual bonus (taxable) or annual pension top-up direct from employer (not taxable) - it may be just a way of reducing the pensionable salary.
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I don't believe that many people would call these "cash payments".

Anyway - perhaps the original poster can explain what they mean by "cash payment".
 
I can't say why someone would turn down what (for all we know) may be an interesting/more challening/more exciting job simply because the terms were not satisfactory...everything is negotiable.
 
As I said - maybe the original poster can clarify some of the details of the query to see if earlier comments were inappropriate.
 
Thanks everyone for your replies.

The €12K in question, is "Hard cash" . The pension schem on offer by the new emploer is DC, as is my current scheme also.

I share the views expressed re. the cash element / practice & inherent other dangers. On the contrary then, this employer is in business for over 30 years, is very successful and has a very loyal workforce, where the majority of employees have 20+ years service - they have stayed with the employer and speak very highly of the company ?

Kandy
 
Kandy said:
The €12K in question, is "Hard cash" .
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Presumably you mean what I originally suspected - an under the table payment designed by the company to evade tax and their responsibilities in this regard?

By all means negotiate if you think the offer is still attractive but I would not trust a company that engaged in such remuneration practices.
Maybe they are being paid/treated properly and not dealing with such questionable remuneration practices as are being offered to you?
 
Hi Clubman,

Yes you are correct, cash under the table, which is what concerns me.

Re. the other emnployees - I do not know how they are remunerated.

Kandy
 
Would you prefer to stay in your old job or work in this new job?
 
Kandy said:
This scenario is strange to me and I have concerns as to the impact such an arrangement would have on my final pension (will reach 65 in 10 years time) , as my taxable income is different to my total income ?
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By the way - this is not correct. Your taxable income is the lot (€40K + €12K cash in hand = €52K) regardless of what the company may be doing in attempting to evade their responsibilities (e.g. employer PRSI, deducting employee tax and PRSI). Unless you conspire to evade tax as well your base gross income will be €3K less that your current stated gross income. You would also get the €4K pension contribution (which will actually be c. 7.7% of your real gross) but I have no idea how this compares with your current situation. More food for thought perhaps?
 
I'd have several issues with the whole thing: -

(1) Your current employer believes your services to be worth €55,000. Your new one is only prepared to pay €52,000 for them.

(2) If the business is so well-established and successful, why can't they just pay you the €52,000 in a legitimate fashion? Employer's PRSI on the €12,000 would be a mere €1,290 per year and they could write the total cost off as a trading expense. If they're prepared to risk prosecution in order to save such small sums (in the context of an established business) what does that say about their finances?

(3) Many people seem to think that if someone has been getting away with tax evasion for an extended period, it follows that they'll never be caught. It doesn't. Revenue turn their attention to different areas of tax evasion at different times. Just because they haven't investigated this business yet doesn't mean anything. Every year they announce what new areas they'll be investigating. Maybe this business is next. If it's been evading tax for 30 years and is caught, it could be closed down.

(4) Although tax evasion and cash payments are seen as acceptable practices in certain quarters, be clear in your own head about it - your prospective employer is proposing defrauding the State. If you accept these terms you are participating in that fraud. You cannot declare and pay tax on the €12,000 unless you lie about it's source because to do so would be effectively blowing the whistle on your own employer.
 
I think Liam has made some very good points-I wouldn't be inclined to take this job.
 
If I were moving job, it would be the actual nature of the job rather than the pay that would matter most to me.

If they just paid a gross salary of €52k (more or less same cost to them) would the job be more attractive or less attractive than your current job?

I would prefer a job I like that paid €52k than one I don't like that paid €55k.
 
Aren't you conveniently ignoring the issue of the cash payments?

Or are you suggesting that the OP refuses such payments?
 
As I already mentioned, the job candidate is free to negotiate and can advise the employer that they would prefer to receive the salary in a different format.

It is not particularly convenient to me - it is just a suggestion.
 
Fair enough-as others have said, I would be wary of trusting such an employer.
 
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