Understanding online payroll

Published Friday 5 June 2026

Table of contents

• What is payroll?
• How does payroll work?
• Payroll taxes and deductions in Ireland
• How to choose payroll software
• How to set up payroll for your small business
• Types of employee pay
• Payroll record-keeping requirements
• Payroll compliance: your responsibilities as an employer
• Simplify your payroll with Xero
• FAQs on payroll

Key takeaways

• Payroll is the process of calculating and distributing employee wages while deducting the correct amounts for Pay As You Earn (PAYE), Pay Related Social Insurance (PRSI), and Universal Social Charge (USC) on each pay cycle.
• In Ireland, employers must register with the Revenue Commissioners, submit payroll reports before each pay date, and file accurate returns to stay compliant with Irish tax law.
• Choosing cloud-based payroll software can help you automate tax calculations, reduce manual errors, and save hours on every pay run.
• Keeping accurate payroll records for at least 6 years is a legal requirement under Irish employment and tax legislation, so a reliable system is essential from day one.

What is payroll?

If you employ anyone in Ireland, payroll is one of the first responsibilities you need to get right. Understanding what it involves helps you stay compliant and pay your team accurately.

Payroll is the process of calculating employee wages, withholding the correct taxes and contributions, and distributing pay on time. It covers everything from gross pay calculations to filing returns with the Revenue Commissioners.

For small businesses, payroll also includes tracking hours worked, managing leave entitlements, and issuing payslips. Each of these steps must follow Irish employment law and Revenue requirements.

Getting payroll right protects your business from penalties and builds trust with your employees. It also gives you a clear picture of your labour costs, which feeds directly into your financial planning.

How does payroll work?

Running payroll follows a repeating cycle each pay period. Once you understand the steps, the process becomes straightforward to manage.

1. Gather employee information

Before your first pay run, collect each employee's Personal Public Service Number (PPSN), tax credit certificate details, and bank account information. You also need to register as an employer with the Revenue Commissioners through Revenue Online Service (ROS).

2. Track hours and attendance

Record the hours each employee works during the pay period. This includes regular hours, overtime, sick leave, and annual leave. Accurate time tracking is the foundation of correct pay calculations.

3. Calculate gross pay

Gross pay is the total amount an employee earns before any deductions. For salaried employees, divide the annual salary by the number of pay periods. For hourly employees, multiply hours worked by the hourly rate and add any overtime or bonuses.

4. Deduct taxes and contributions

Apply the required tax deductions from each employee's gross pay. In Ireland, this means calculating PAYE income tax, PRSI contributions, and USC. Your employee's Revenue Payroll Notification (RPN) tells you the correct tax credits and rate bands to apply.

5. Calculate net pay

Net pay is what the employee takes home after all deductions. Subtract PAYE, PRSI, USC, and any other deductions such as pension contributions from the gross pay figure. This is the amount you transfer to the employee's bank account.

6. Pay your employees

Transfer the net pay amount to each employee by the agreed pay date. Most Irish businesses use electronic bank transfers. You must also provide each employee with an itemised payslip showing gross pay, deductions, and net pay. A payslip template can help you include all the required details.

7. Submit payroll reports to Revenue

Under Ireland's PAYE Modernisation system, you must submit a Payroll Submission Request (PSR) to Revenue on or before each pay date. This reports each employee's pay and deductions in real time. You also need to remit the taxes you've withheld to Revenue by the 23rd of the following month.

8. Keep detailed records

Store all payroll records securely after each pay run. This includes pay calculations, tax deductions, payslips, and Revenue submissions. You'll need these records for audits, employee queries, and end-of-year reconciliation.

Payroll taxes and deductions in Ireland

Ireland has specific tax obligations that every employer must understand. Getting these deductions right is essential for staying compliant with Revenue.

PAYE (Pay As You Earn) is the income tax system that requires employers to deduct tax from employee wages at source. Ireland uses a cumulative tax system with 2 rate bands: the standard rate of 20% and the higher rate of 40%. The amount each employee pays depends on their tax credits and rate band, both detailed in their Revenue Payroll Notification.

PRSI (Pay Related Social Insurance) funds social welfare benefits such as the State Pension, illness benefit, and maternity benefit. Both employer and employee pay PRSI contributions. The rates depend on the employee's earnings and their PRSI class. Most private sector employees fall under Class A.

USC (Universal Social Charge) is a tax on gross income that applies to most employees earning more than EUR 13,000 per year. USC has multiple rate bands, starting at 0.5% and increasing with income. Unlike PAYE, USC is calculated on gross income before pension deductions.

Employer PRSI is an additional cost on top of wages. Employers pay PRSI at 11.05% on most employee earnings. This is not deducted from the employee's pay; it's an extra cost your business must budget for.

Pension auto-enrolment is coming to Ireland. Once introduced, employers must automatically enrol eligible employees into a workplace pension scheme. Planning for this now helps you budget for future payroll costs. Use an income tax calculator to estimate the impact of deductions on employee take-home pay.

How to choose payroll software

The right payroll software can save you hours of manual work each pay cycle. It can also help reduce the risk of costly errors and missed deadlines.

Look for software that handles Irish payroll requirements out of the box. This means automatic PAYE, PRSI, and USC calculations, plus direct integration with Revenue Online Service for payroll submissions.

Cloud-based payroll software gives you access from anywhere, so you can run payroll from your phone or laptop. It also means automatic updates when tax rates or legislation change, keeping you compliant without extra effort.

Consider how the software fits with your existing tools. Payroll that connects to your accounting software reduces double entry and gives you a single view of your business finances. Look for features that match your needs:

• automatic tax calculations for PAYE, PRSI, and USC
• Revenue Online Service integration for real-time reporting
• payslip generation and distribution
• leave management and holiday tracking
• pension contribution management
• employee self-service access

How to set up payroll for your small business

Setting up payroll for the first time takes some preparation. Follow these 6 steps to get your payroll running smoothly from the start.

1. Register as an employer with Revenue

Register your business as an employer through Revenue Online Service (ROS). You'll receive your employer tax registration number, which you need before making any payroll submissions. Registration is free and can be completed online.

2. Collect employee details

Gather each employee's PPSN, contact details, bank account information, and start date. Request a Revenue Payroll Notification for each employee through ROS. This document provides the tax credits and rate bands you need to calculate their deductions correctly.

3. Choose your pay frequency

Decide how often you'll pay your employees: weekly, fortnightly, or monthly. Monthly is the most common for salaried staff in Ireland. Your choice affects how you calculate pay and when you submit payroll reports to Revenue.

4. Set up your payroll system

Choose payroll software or engage a payroll bureau to handle your pay runs. Enter each employee's details, tax information, and pay rates into the system. Run a test payroll to confirm calculations before your first real pay date.

5. Run your first payroll

Calculate gross pay, apply deductions, and submit your Payroll Submission Request to Revenue on or before the pay date. Transfer net pay to each employee and issue their payslip. Double-check all figures against the Revenue Payroll Notification before submitting.

6. Set up ongoing processes

Create a payroll calendar so you never miss a pay date or Revenue deadline. Set reminders for monthly tax remittances, which are due by the 23rd of the following month. Review your payroll process after the first few cycles and adjust where needed.

Types of employee pay

Employees in Ireland can be paid in different ways depending on their role and contract. Understanding these pay types helps you set up payroll correctly.

Salaried pay is a fixed annual amount divided equally across pay periods. Salaried employees receive the same amount each pay day regardless of hours worked. This is common for office-based and professional roles.

Hourly pay is calculated by multiplying the hours worked by an agreed hourly rate. Ireland's national minimum wage sets the floor for hourly rates. You must track hours accurately and pay overtime where contractually agreed.

Commission-based pay is linked to performance, typically sales targets. Some employees receive commission on top of a base salary, while others work on commission only. All commission payments are subject to the same PAYE, PRSI, and USC deductions as regular pay.

Bonuses are one-off or periodic payments on top of regular wages. Bonuses are fully taxable and must be processed through payroll with the correct deductions applied. Common examples include performance bonuses, holiday bonuses, and profit-sharing payments.

Payroll record-keeping requirements

Irish law requires you to keep detailed payroll records for a minimum of 6 years. Meeting this requirement protects you during Revenue audits and Workplace Relations Commission inspections.

Under the Payment of Wages Act 1991 and the Organisation of Working Time Act 1997, you must retain records of each employee's wages, hours worked, deductions, and leave entitlements. Revenue also requires you to keep copies of all payroll submissions and tax calculations.

Store records securely, whether digitally or in hard copy. Digital records are easier to search, back up, and produce during an audit. Cloud-based payroll software automatically archives each pay run, making record-keeping far simpler.

At the end of each tax year, reconcile your payroll records with Revenue's records. File your employer's annual return and confirm that all PAYE, PRSI, and USC amounts balance. Address any discrepancies promptly to avoid penalties.

Payroll compliance: your responsibilities as an employer

As an employer in Ireland, you have legal obligations that go beyond simply paying wages on time. Staying on top of compliance helps you avoid fines, penalties, and disputes.

Revenue obligations: you must register as an employer, deduct the correct PAYE, PRSI, and USC from each employee, submit payroll reports on or before each pay date, and remit taxes monthly. Late submissions or underpayments can result in interest charges and penalties.

Employment law: the Workplace Relations Commission (WRC) enforces minimum wage legislation, working time regulations, and leave entitlements. You must comply with the National Minimum Wage Act, the Organisation of Working Time Act, and the Terms of Employment (Information) Acts. Provide written terms of employment within 5 days of an employee's start date.

Payslip requirements: under the Payment of Wages Act, you must give every employee a written payslip showing gross pay, all deductions, and net pay. Payslips can be provided in paper or electronic format.

Data protection: payroll data contains sensitive personal information. Under GDPR, you must store it securely, limit access to authorised personnel, and retain it only for as long as legally required. Have a clear data retention policy for payroll records.

Simplify your payroll with Xero

Running payroll doesn't have to be stressful or time-consuming. With the right tools, you can automate calculations, stay compliant with Revenue, and give your employees confidence that they're being paid correctly.

Xero's cloud-based accounting platform brings your finances and payroll together in one place. You get real-time visibility into your business costs, automatic tax updates, and a clear record of every pay run. Spend less time on admin and more time running your business. Get one month free.

FAQs on payroll

Here are answers to some frequently asked questions about payroll for small businesses in Ireland.

What is the difference between payroll and salary?

Payroll is the entire process of calculating wages, withholding taxes, and distributing payments to all employees, whether salaried, hourly, or commission-based. Salary refers specifically to the fixed annual amount a salaried employee earns.

Can I do payroll myself?

Yes, many small business owners in Ireland manage their own payroll using software that automates PAYE, PRSI, and USC calculations and submits reports directly to Revenue. As your team grows, you may consider outsourcing to a payroll bureau or accountant.

How often should you run payroll?

In Ireland, most businesses pay employees weekly, fortnightly, or monthly, with monthly being the most common for salaried staff. Whatever frequency you choose, you must submit a Payroll Submission Request to Revenue on or before each pay date.

Is payroll part of HR or accounting?

Payroll sits at the crossroads of HR and accounting: HR manages contracts and leave, while accounting handles tax calculations and reporting. In small businesses, one person often covers both, which is why software that connects payroll to your accounts saves significant time.

What happens if you get payroll wrong?

Payroll errors can lead to underpayment or overpayment of wages, incorrect tax deductions, and compliance issues with Revenue, including interest charges and potential fines. If you spot a mistake, correct it promptly and submit an amended payroll report through ROS.