Hiring your first employee is one of the most significant milestones in the growth of a small Irish business. It is also one of the most administratively demanding. Between the Revenue obligations, the employment law requirements, the social insurance system, and the new auto-enrolment pension rules, there is a lot to get right — and getting it wrong from the beginning creates compounding problems.
This article is written for business owners in Dundalk and across Ireland who are about to hire their first employee, or who have recently done so and want to make sure they have set everything up correctly. It is part of our payroll and employment guides and covers every step, in order.
Step 1: Register as an Employer With Revenue
Before you can pay anyone, you must register as an employer with Revenue. This registration creates your employer PAYE record and gives you access to the employer section of ROS (Revenue Online Service), which is the system through which payroll submissions are made.
Registration is done through Revenue’s myAccount or ROS. You will need your PPS number (for a sole trader) or the company’s tax registration number. The registration requires you to confirm the nature of your business, your expected payroll frequency, and the approximate number of employees.
Once registered, Revenue will set up your employer tax registration number, which appears on all payroll submissions and employer documentation.
Step 2: Get Your Employee’s PPS Number and Revenue Payroll Notification
Before you can process payroll correctly, you need two things from your employee:
Their PPS number (Personal Public Service number) — the Irish social insurance number. Without this, you cannot retrieve their tax credits and rate band information from Revenue.
Their completed starter declaration. The employee should advise you whether this is their first job, whether they have another employment, and whether they have received any social welfare payments recently. This affects the initial PAYE treatment.
Once you have the employee’s PPS number, you retrieve their Revenue Payroll Notification (RPN) from ROS. The RPN contains the employee’s current tax credits, standard rate band, PRSI class, and USC rates. Your payroll system uses this information to calculate the correct deductions each pay period.
If the employee has not yet registered with Revenue (for example, a new worker who has never been employed in Ireland before), they will be on emergency tax until Revenue issues an RPN. Emergency tax deducts at higher rates — it is not final, but it does mean the employee receives less net pay initially and should be regularised as quickly as possible.
Step 3: Set Up Your Payroll System
Under PAYE Modernisation (live in Ireland since 2019), you must submit payroll data to Revenue on or before each pay date. This requires a payroll system that:
Connects to Revenue’s ROS and retrieves RPNs before each payroll run. Calculates PAYE, PRSI (employee and employer), and USC correctly for each employee. Generates the Payroll Submission Request (PSR) and submits it to Revenue on or before the pay date. Produces payslips for employees.
Your options include:
Payroll software (Sage, Collsoft, Bright Pay, Thesaurus, Micropay and others) — you manage the process yourself with software that handles the calculations and submissions. Outsourced payroll bureau — a professional service manages your payroll on your behalf, at a monthly fee per employee. For small employers, this is often the most cost-effective approach when management time is properly valued, as I explore in our guide to outsourcing payroll for Irish SMEs.
Do not attempt to run payroll on a spreadsheet. The manual calculation of PAYE, PRSI, and USC for every employee every pay period, and the manual submission of PSRs to Revenue, is error-prone and places the entire compliance risk on you personally.
Step 4: Understand What Deductions Are Required
For a typical employee (PRSI Class A), the deductions from gross pay each period are:
Employee PRSI — 4% on earnings above a threshold (check the current threshold at gov.ie). Employees earning below this threshold in a pay period pay PRSI at a lower rate.
Income Tax (PAYE) — calculated at 20% up to the employee’s standard rate band, and 40% above it. The standard rate band for 2026 for a single person is approximately €44,000 per year. This is split across pay periods (weekly or monthly) for payroll purposes.
USC (Universal Social Charge) — charged at escalating rates from 0.5% on the first tranche of income, up to higher rates on higher incomes. Check the current rates at revenue.ie.
Additionally, you as the employer pay:
Employer PRSI — at 8.8% on weekly earnings up to €496, and 11.05% above that. This is not deducted from the employee — it is a cost on top of gross pay.
Auto-enrolment pension contributions — from September 2025, 1.5% of eligible employee earnings (on earnings up to €80,000 annually) for enrolled employees. The employee also contributes 1.5%, deducted from their pay.
Step 5: Understand the Payroll Reporting Cycle
Each pay period, you must:
Before processing payroll: retrieve updated RPNs from Revenue for all employees. Any RPN changes since the last pay period are automatically reflected when you retrieve RPNs — this captures changes to employees’ tax credits, rate bands, or PRSI class.
On or before the pay date: submit the PSR to Revenue via ROS. The PSR contains each employee’s gross pay, PAYE, PRSI, and USC for the period.
By the 23rd of the following month: pay the PAYE, employee PRSI, and employer PRSI to Revenue. The payment relates to the previous month’s deductions and employer contributions.
For auto-enrolment contributions: remit both the employee and employer contributions to the NAERSA system according to the specified timeline.
Missing the payroll submission or payment deadlines attracts interest and potentially penalties. Revenue’s compliance system is automated — late submissions are flagged in real time.
Step 6: Give Your Employee a Contract
Before or at the point of starting employment, you must provide your employee with a written statement of their core terms of employment. The EU (Transparent and Predictable Working Conditions) Regulations 2022 require the core terms within 5 days of commencement:
Name and address of employer and employee. The nature and expected duration of the employment. Remuneration — the rate of pay, when it is paid, and the method of payment. Normal hours and days of work. The entitlements to paid leave. Details of any probationary period.
The full written statement of all terms must follow within one month.
A properly drafted employment contract protects both employer and employee. It should also cover: notice periods, confidentiality, intellectual property (for relevant roles), and the sick pay policy.
Step 7: Know Your Leave Obligations
From day one of employment (or from when entitlement accrues), your employee has statutory leave rights:
Annual leave: 4 working weeks per year minimum (calculated on hours worked for part-time staff). 10 public holidays per year (entitled to a paid day off or equivalent).
Sick leave: Statutory sick pay of 7 days per year (at 70% of normal earnings, subject to the daily cap) for employees with 13+ weeks’ service. GP certificate required.
Parental leave and maternity/paternity leave: Entitlements under the Parental Leave Acts, Maternity Protection Acts, and Paternity Leave Act. Revenue manages the payment of Maternity Benefit and Paternity Benefit through the social welfare system; your obligation is to grant the leave and to continue to pay the employee during any paid leave period that forms part of your contractual obligations.
Step 8: Understand Auto-Enrolment
Your employee is eligible for auto-enrolment if they are aged 23–60, earn more than €20,000 per year, and are not already in a qualifying occupational pension scheme. You must enrol them through the NAERSA system.
The employer contribution is 1.5% of gross eligible earnings (2025–2027 rate). The employee also contributes 1.5% (deducted from their pay). The State adds a 0.5% top-up.
Employees can opt out in months 7–8 of enrolment, but must be re-enrolled after two years if they continue to meet the eligibility criteria.
Keeping Records
Irish law requires you to maintain payroll records for each employee, including:
Payslips for each pay period. Records of all deductions. Attendance and leave records. Auto-enrolment records.
Records must be retained for at least 6 years (and in some cases longer). Revenue can request payroll records in a compliance check. The penalty for failure to maintain adequate records is a direct Revenue assessment of what is considered to be owed.
The Value of Getting It Right From Day One
The cost of setting payroll up correctly at the start is modest — whether in professional advice, payroll software, or a bureau service. The cost of unravelling two or three years of incorrect payroll — employer PRSI at the wrong class, missing auto-enrolment deductions, incorrect tax deductions, records that do not exist — is many times higher.
If you are about to hire your first employee, take thirty minutes to ensure the setup is correct before you pay them for the first time.
Paddy Malone FCA AITI
Paddy is the principal of Malone & Co. Chartered Accountants in Dundalk. A Fellow of Chartered Accountants Ireland and a Chartered Tax Consultant with the Irish Tax Institute, he has been advising businesses across County Louth and the North-East for over 35 years.