HR implications of budget 2021

CIPD Ireland is pleased to provide the highlights of Budget 2021, from a HR perspective. While spending more than ever in a Budget in this State, the Minister has attempted to spread benefits far and wide

In Budget 2021 Minister for Finance Pascal O’Donohoe TD put the focus on recovery, calling out  that the health of the country and the health of the economy are interdependent – the better our public health, the stronger our economic health. This of course impacts organisation performance and working lives. Below we look at the main HR implications.

Recognising the continued presence of the virus in Ireland and spending more than ever in a Budget in this State, the Minister has attempted to broadly spread the benefits. With a total budgetary package of over €17 billion, €3.4 billion will be used to establish a Recovery Fund to stimulate demand and employment, focussing on infrastructure development, reskilling and retraining, supporting investment and jobs.

It is good to see that the government recognises the inequality that has arisen in the labour market, where an unemployment rate of over 12% is expected at the end of the year, reflecting a total loss of approximately 320,000 jobs in 2020, with a forecast that this will recover by approximately 155,000 jobs next year. Job loss has had a disproportionate impact on young people, with an unemployment rate of 37% in September 2020, and a clear plan to tackle this is necessary.

Employment schemes

The employment wage subsidy scheme, which pays a proportion of the wages of those on the scheme, will continue in an amended form to the end of 2021. It was previously expected to end in March 2021. Pandemic unemployment payments will continue as planned until April 2021 and remains open to new applicants.

There will be a new scheme for businesses which have to close because of COVID-19 restrictions at Level 3 or higher (COVID Restrictions Support Scheme, CRSS). This will provide a maximum of €5,000 per week available as an advance credit for trading expenses, and how much of this can be used to fund wages has yet to be seen. Initially this will focus on supporting the most impacted sectors of accommodation, food and the arts, recreation and entertainment where the restrictions directly prohibit or restrict access by customers. This will be available to the end of March 2021.

Taxation and National Minimum Wage

With the emphasis on the supporting health and those most affected by the pandemic, there is little change to the tax regime. The 12.5% corporation tax remains in place and a new tax credit scheme will be developed for the digital gaming sector, aimed to support the creative arts. A reduced VAT rate of 9% will apply in the hospitality and tourism from 1 November 2020 until December 2021.

A number of specific changes will ensure that the salary of a full-time worker on the national minimum wage will not be negatively impacted by the tax and insurance regime when the minimum wage increases by 10c on 1 January 2021 to €10.20 per hour. The ceiling of the second Universal Social Charge rate band will be increased by €203 to €20,687 to avoid such a person having to pay the top rate. The weekly threshold for the higher rate of Employer’s PRSI will change minimally from €394 to €398 to protect against it impacting those on the minimum wage worker.

Working from home and other tax relief

The Minister references the importance of working from home, or remote working as an essential element of the response to the pandemic. In the main he highlighted the current tax reliefs already available whereby an employer may pay up to €3.20 per day to employees working from home without a Benefit-In-Kind tax liability. Where this is not paid, a worker may claim a tax deduction for utility expenses such as heat and light – and, new for 2020, some of the costs of broadband. Future tax claims will also be able to cover other vouched expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of their employment, to be defined by Revenue Commissioners. Taxation initiatives are an important step in encouraging greater remote and flexible working on an ongoing basis.

For the self-employed, there will be an equalisation of the earned income credit compared to PAYE workers, raising it by €150 to €1,650. The Budget allowed for deferred Revenue payments, including repayments of Temporary Wage Subsidy Scheme funds owed by employers and preliminary tax obligations for the adversely affected self-employed. A new Commission on Welfare and Taxation will be set up to consider how best the tax system can support economic activity and promote increased employment and prosperity.

Pensions and social welfare

On pensions, the Minister for Public Expenditure and Reform, Michael McGrath TD confirmed that the state pension age will not rise to 67 next January. A Pensions Commission would be established to consider pension age for the future. This has significant cost implications for the State.

The government announced that the number of waiting days for Illness Benefit will be reduced from 6 days to 3 days on new claims from the end of February 2021.

Parents leave and Parents' Benefit will be extended by 3 weeks from April 2021 to allow parents to spend more time with their baby. From April 2021, Parent’s Benefit will be paid for 5 weeks, up from the current  2 weeks for parents of children born or adopted from November 2019. The period it can be taken will be extended up to the child's second birthday or within 2 years following adoption. It is available to both parents.


Nearly €9 billion has been allocated to the Department of Education under Budget 2021. This will include €50m to provide assistance to full-time third-level students and €120m for reskilling and upskilling people affected by the pandemic. It is unclear what is the expected impact of the new €250 payment to third level students, saying it is to compensate for the move towards greater online learning. In addition, more generous post-graduate grants will be made available. The increase in the number of college places and the review of the student grant scheme will hopefully benefit part-time students and support upskilling. The reduction in the pupil-teacher ratio at primary level is to be welcomed.

Brexit and sustainability

The Budget assumes a no-deal Brexit, and the Recovery Fund will be available to support initiatives and stimulate demand in response, though no detail was given. On sustainability, the accelerated capital allowances scheme for energy efficient equipment has been extended for a further three years, there will be an increase in carbon tax and a new motor vehicle tax regime.

Budget documents

Finally, a number of interesting reference documents were released on elements of the labour force as part of the budgetary process. These explore areas such as national wellbeing measures, composition of employment in small and large firms, job churn and workforce dynamics in the public service, the sustainability of public service pensions and forecasting jobseeker expenditure in 2021. A useful source of insights.