Tax treatment of payments made pursuant to a Court order under section 2B of Employment Permits Act 2003

The objective of section 2B of the Employment Permits Act 2003 is to deter employers from employing foreign nationals without an employment permit by allowing a foreign national to take civil action for compensation against an employer in respect of work done or services rendered, notwithstanding the illegality of any contract. Compensation is to be calculated by a court by reference to the national minimum hourly rate of pay or any other rate of pay which is fixed under, or pursuant to, any enactment.

The tax treatment of such compensation payments is covered by new provisions - section 124A and subsection 5A of section 192A – which were introduced into the Taxes Consolidation Act 1997 by section 37 of the Employment Permits (Amendment) Act 2014.

By virtue of these provisions, compensation payments made by court order under section 2B of the Employment Permits Act 2003 are taxable in full and are subject to PAYE and USC. The payments are not treated as reckonable emoluments for the purposes of PRSI contributions.

The provisions are dealt with in new Tax and Duty Manual 05-05-34 and updated Manual 07.01.27.

24 December 2014