In Ireland, director fees must be processed through the payroll system to comply with Revenue requirements. Whether the payment is called a “fee,” “salary,” or any other form of remuneration, it must be run through PAYE so that the correct taxes are deducted and reported. Below, we break down exactly how this works and the rules you need to be aware of.

1.PAYE System for Directors:

All payments to directors — whether fees, salaries, or other emoluments — must go through the PAYE (Pay As You Earn) system.
This ensures that the following are deducted at source and remitted to Revenue:

• Income Tax

• PRSI (Pay Related Social Insurance)

• USC (Universal Social Charge)

2. How to Process Director Fees in Payroll

Step 1 – Request a Revenue Payroll Notification (RPN)
Before any payment is made, the employer must request an RPN from Revenue for the director.
The RPN provides tax credits, rate bands, and USC rates to apply.

Step 2 – Add the Director to the Payroll System
The director must be registered as an employee in the payroll system — even if they are a proprietary director (owning more than 15% of the company).

Step 3 – Calculate Deductions
Based on the RPN, apply the correct:

• Income Tax (20% or 40%, depending on total income)

• PRSI (Class S for proprietary directors; Class A for non-proprietary)

• USC (based on total income)

Step 4 – Report to Revenue
All director payments must be reported on or before the payment date using the Real-Time Reporting (RTR) system.

Step 5 – Pay the Director
After deductions, the net amount is paid to the director.

Step 6 – Remit Deductions to Revenue
Employers must pay the deducted PAYE, PRSI, and USC to Revenue by the due date.

3. Special Rules for Proprietary Directors

If a director owns more than 15% of the company, they are taxed on an earnings basis — meaning they are taxed in the year the income is earned, not when it is received.

If emoluments are paid more than six months after the end of the accounting year, they are treated as having been paid on the last day of that year for tax purposes. Payroll records for that period must be updated accordingly.

4. Example

A director receives a fee of €10,000 in March 2025. The employer:

1. Requests an RPN from Revenue.

2. Processes the payment through payroll, deducting PAYE, PRSI, and USC.

3. Reports the payment in real-time to Revenue.

4. Pays the net amount to the director.

5. Remits the deductions to Revenue.

5. Consequences of Non-Compliance

Not processing director fees through payroll can lead to:

• Penalties (e.g., €4,000 fixed penalty under Section 987 of the Taxes Consolidation Act 1997)

• Revenue treating the payment as net of tax, creating further tax liabilities and interest charges.

6. Key Takeaways

• All director fees — regardless of what they are called — must be processed through payroll.

• Directors must also complete a Form 11 for self-assessment, declaring all income.

• Proper payroll processing ensures compliance and avoids unnecessary penalties.

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