Taxation of Maternity Benefit

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STEINER

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An issue arose at work recently over a reduction in salary payment to an employee on maternity leave. It confuses me, or rather there are different opinions being bandied about at work (small organisation). There is no other maternity leave example at work to refer to and I have the fictional example below from the citizen's information website as it resembles the work situation.

Company policy states full salary less maternity benefit is payable during maternity leave.

The maternity benefit is paid by DSP directly to company.

Employee has just gone on maternity leave with a normal month's gross salary of 6k and this months net pay is reduced from what she normally gets, due to the tax credits and standard rate cut-off point being adjusted for the maternity benefit.

What is wrong with this? It seems exactly like the published example 1 below, allowing for monthly instead of weekly. Is it correct for the employee to pay tax on the benefit even though the benefit goes directly to the company?

Example 1: Ann is paid her full salary while on maternity leave
Ann is on maternity leave. She continues to receive her normal gross salary of €700 per week and Maternity Benefit of €235 per week is paid directly by the Department of Social Protection (DSP) to Ann’s employer.

Revenue will receive the Maternity Benefit details directly from the DSP, reduce Ann’s annual tax credits and rate band by the Maternity Benefit amount (see above for how this is done), and send a revised tax credit certificate to her employer. Ann’s revised weekly rate band will be €415 and her weekly tax credits will be €16.46.

http://www.citizensinformation.ie/e...case_study_taxation_of_maternity_benefit.html
 
So she receives salary less maternity benefit, but maternity benefit is paid by DSP to the company? But not paid on to employee? Is that correct?
 
Lots of companies do that, for simplicity.
The cheques are issued to the company and the company reduce gross pay by the same amount but add on the maternity benefit.
The net pay is the same and there is no financial benefit to the company.
 
Hmmm...I'm not sure that's right. For example, there's no USC on maternity benefit and I'm pretty sure there's no PRSI. So she should be slightly better off.
 
Doing it this way, the company should put the MB through as a non taxable payment. They don't seem to be.
 
Yes, agreed. If they pay the lower salary using adjusted tax rate / band, and then they add the maternity benefit gross, the net pay should be unaffected (or slightly higher due to PRSI / USC)
 
There may also be a difference depending on whether they "monthlyise" the MB - they might be using 4/4/5 weeks MB for handiness.
 
Thanks all for input. I think the issue is that the new tax credits and cut off point are correct, but that the MB hasn't been added as a non taxable element even though on the face of it the gross salary is the same as pre-maternity leave. So you have a reduced net which is incorrect. HR policy document is short on guidance as it simply states "Salary will be paid less maternity benefit", without further elaboration.
 
Tax treatment of MB has changed in recent years. In general there is a lot of ineptitude among payroll departments although it is improving somewhat. But they have an "always right" or "the system says it is right" attitude so difficult to make them see sense sometimes.
 
JoeRoberts said:
Tax treatment of MB has changed in recent years. In general there is a lot of ineptitude among payroll departments although it is improving somewhat. But they have an "always right" or "the system says it is right" attitude so difficult to make them see sense sometimes.
Click to expand...

With alot more outsourcing of payroll in recent years the issue of payroll not being given the information is a problem. I had a case recently where we only discovered an employee was on SW when we were doing the bank Rec and saw the payment coming into the company.
To give an example gross pay is normally €1,000/week MB is 230 a week
As said to treat it correctly in the pay there should be two lines on the payslips Gross Pay 770 Maternity Benefit 230 this way the system will only tax the 770 assuming it has been set up right
 
Nutso said:
But maternity pay is taxable so both lines should be taxed?
Click to expand...
No, because Revenue amend the Tax credit certificate for it reducing tax credits & band. If it was taxed again you'd be paying tax twice.
 
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