Illness Benefit (Previously known as “Disability Benefit”)
What is Illness Benefit?
Illness Benefit is a payment for insured people who cannot work due to illness.
It will replace the payment previously known as Disability Benefit from 2 October 2006.
Illness Benefit is made up of a personal rate for the employee with extra amounts for any dependant adults/children.
What about Illness Benefit and Tax?
The Department of Social Welfare issues all Illness Benefit payments without deducting any tax.
The first six weeks (or 36 days) of Illness Benefit in each tax year is not reckonable for income tax purposes (i.e. it is tax free) Note 1. The employee’s personal portion is liable for tax (but not for PRSI) after six weeks. Any payment in respect of dependant children is always exempt from tax.
Paul an employee of your company has been ill and receives Illness Benefit made up as follows;
Paul’s Personal Portion - € 148.80
Dependant Spouse - € 98.70
Dependant Children - € 95.00
Total Illness Benefit - € 342.50
For the first six weeks the total benefit of €342.50 is tax free. After six weeks the €247.50 (Personal + Spouses portion) is taxable while the remaining €95.00 (Dependant Children’s portion) is tax free.
Processing Illness Benefit
1. Employer does not pay any wages to the employee during the period of illness.
In this case the employer does not enter any wages into CollSoft Payroll while the employee is out of work.
The employer needs to determine the total amount of Illness Benefit received by the employee'
Anthony, an employee of yours receives 14 weeks of Illness Benefit at the rate of €247.50 per week. The total amount of benefit received is €3,645.00.
Of this, €1,485 (six weeks at €247.50) is tax free and €1980 is taxable (eight weeks at €247.50)
While running your next payroll for this employee you would enter the following details into his wage:
2. Employer pays the employee a payment (a top up),and the employee retains the Illness Benefit payment.
In this case the employer is paying the employee a portion of their normal wage while the employee receives their illness benefit. This top up is treated as a normal wage payment and is entered in CollSoft Payroll in the usual manner.
If the employer knows how much benefit that the employee is receiving, then the benefit payments can be recorded along with the wage each week.
Where the employer does not know how much benefit the employee is receiving the employer simply enter the wage top up as a normal wage and leave the illness amounts as zero.
The disability payments (taxable and non-taxable) can be entered as part of another payroll run at a later stage.
3. Employer pays the employee their full wages as normal and recovers the Illness Benefit cheque from the employee.
In this scenario, the employer is paying the employee their full wage and the employee is handing over the benefit payment directly to the employer.
To process this in CollSoft Payroll the user needs to reduce the employee’s salary by the amount of the illness benefit and enter the illness benefit as either a taxable or non-taxable illness payment. You must select the Employer as the recipient of the illness benefit payment on the illness benefit screen.
Jason usually earns a Gross salary of €400 each week. He then becomes ill and goes on illness benefit of €235.00 per week. His employer agrees to pay him his full wages, but Jason must surrender his illness benefit payments to his employer.
The employer would records the wage as follows:
Firstly, you should enter a salary of €165 (€400 - €235) on the wage entry screen
Enter the €235 as a non taxable disability benefit payment, select the Employer as the recipient of the illness benefit payment.
Payroll will now factor the benefit into its tax calculation.