Economic fundamentals and tax cuts coming in January mean all workers will have more spending power in 2016. Large employers are now doling out pay hikes but do SMEs have to follow suit?
The two main banks, AIB and Bank of Ireland, have joined the pay rise party. State-owned AIB provided a pay hike in 2015 and is currently negotiation another increase for 2016. Meanwhile Bank of Ireland has agreed to pay staff a general increase of 0.9% in 2016 and 0.975% in 2017.
In addition Bank of Ireland staff will be entitled to pay increases linked to performance. Employees who ‘fully meet expectations’ will receive an additional 1.3% increase in 2016 and 1.64% in 2017.
The pay rises come against a backdrop of a reduction in the USC rate that applies to incomes from €18,668 to €70,044, from 7.0% to 5.5%, effective from 1 January 2016.
The tax cut of 1.5% for sub-€70k employees benefits all income earners. The net pay increase will range from €230 to €900 per annum. For a single person taxed under PAYE, the boost to take-home pay due to the USC reduction will be as follows:
In Association with
| Income | Increase |
| € 20,000 | 2.70% |
| € 25,000 | 1.10% |
| € 35,000 | 1.30% |
| € 45,000 | 1.60% |
| € 55,000 | 1.80% |
| € 70,000 | 2.00% |
| € 100.00 | 1.50% |
| € 150,000 | 1.10% |
| € 175,000 | 0.90% |
When the recession impacted the Irish economy in 2009, many employers cut wages and pay freezes were the norm in many companies in subsequent years. In normal times, pay increases are granted to match the inflation rate, to protect the purchasing power of the wage packet.
So what is the inflation backdrop? This is the official data for the Consumer Price Index:
| 2008 | 4.10% |
| 2009 | -4.50% |
| 2010 | -1.00% |
| 2011 | 2.60% |
| 2012 | 1.70% |
| 2013 | 0.50% |
| 2014 | 0.20% |
| 2015 | -0.20% |
What does that mean in practice in terms of purchasing power? If you start from what €3,000 could buy you in 2008, this is what happened in subsequent years when inflation trends are taken into account:
| 2008 | € 3,000 |
| 2009 | € 2,865 |
| 2010 | € 2,836 |
| 2011 | € 2,910 |
| 2012 | € 2,960 |
| 2013 | € 2,975 |
| 2014 | € 2,980 |
| 2015 | € 2,975 |
What the table shows is that for the basket of goods and services that make up the Consumer Price Index, €2,975 will buy you in 2015 what cost €3,000 in 2008.
That would be fine if employees had the same €3,000 to spend now that they had in 2008. Due to the big increase in the tax burden, that is not the case. To give one example, the take-home pay for a single person on €35,000 in 2016 will be 5% less than it was in 2008, and that’s before taking into account the new non-income taxes such as residential property tax and water charges.
In medium to large employers where unions have a strong presence, especially in manufacturing, pay rises of 2% per annum have been the norm since 2011. In large retail employers, Mandate has also been securing pay hikes in the 2% to 3% range.
In the public sector, around 300,000 staff will receive pay increases of €2,000 between January 2016 and September 2017.
Average earnings across the economy were €36,270 per annum in Q2 2015, up 1.8% year-on-year. The largest hike was in the Support Services category, up 8.8% to €27,250. Average annual pay in the ICT sector advanced 4.4% to €55,500.
Across the SME sector generally, average pay declined by 0.8% to €28,100 in 2014/15.
In the year to Q2 1015, there was an increase of 5.6% in mid-sized firm to €33,750, and a 2.1% increase among large employers to €43,250. Public sector pay averaged €47,750 per annum in Q2 – 1.7 times more than the SME average.
