Fianna Fáil Finance Spokesperson Michael McGrath has highlighted a serious anomaly in the PRSI code which could result in workers being hundreds of euro worse off per annum if they were to receive a pay increase on foot of changes to the minimum wage.
Deputy McGrath commented, “Weekend media reports suggested that the minimum wage will increase by €0.50 per hour from its current rate of €8.65 to €9.15. This is also likely to result in increases for those who are currently paid above the minimum wage.
“As a result of the abolition of the €100 weekly PRSI allowance by Joan Burton in Budget 2013, there is a glaring anomaly whereby people at a certain level of income can be worse off it they get a pay increase or work extra hours. Once someone is earning slightly more than the minimum wage working full-time, he or she begins to pay 4% PRSI on all their earnings.
“For example: someone earning €9.38 an hour currently has annual take home pay of €17,508. If they got an increase to €9.60 an hour (an increase of €429 per annum), they will now pay €749 more PRSI per annum than they would previously. With income tax and USC, they would now have take-home pay of €17,072 per annum. In other words, a €429 increase in their gross income would reduce their net income by €436 a year. It equates to a marginal tax rate of over 100%. It would make sense for someone to reduce their hours rather than go above the threshold and pay PRSI on all their earnings. In this example, even if the person got the full €0.50 per hour increase, they would still be €59 a year worse off a result of the pay increase.
“The figures show clearly that by abolishing the weekly PRS allowance, the Government have created a significant distinctive to work for lower income people. Up to 120,000 earning between €17,000 and €20,000 are potentially impacted by what amounts to a roadblock against taking on more hours of work, getting a promotion or a pay rise. The way to tackle this situation is to allow a partial PRSI refund for people earning just above the current level at which employee PRSI becomes payable to offset the impact of this anomaly.”