Is this legal?

OU812

Was having lunch with a contractor in my place yesterday.

He told me he works for a company which invoice us for his time. He’s not a director of the company and is in employee status only. He’s on a considerable daily rate - €600. Coming up on three years with us & he’s going to be renewed.

His company pays him a very small basic wage. The bare minimum so that he’s covered for praise, usc & paye. They then “loan” him the balance of what’s due to him and he doesn’t repay the loan.

That can’t be legitimate, right? If they were paying him €500 a week legitimately, then he’s getting €2500 (or thereabouts after they take their cut) tax free.

What happens with the company with revenue?

Peregrinus

If the loan carries nil interest, or a below-market rate of interest, the interest value is treated as a benefit-in-kind paid to the employee, and taxed accordingly. So each year he pays tax on the amount of interest he should be paying on a loan of that size, if he were paying market rates.

When the loan is written off - i.e. once there's an understanding or agreement that he doesn't have to repay - then the full value of the amount written off is taxable in his hands as a perquisite of his employment.

In short, I don't see how this can work. Maybe it doesn't work, or maybe it does but it hasn't been properly explained to you. (The contractor himself may not correctly understand the deal.)

L.Jenkins

Is he employed and outsourced to your Company via an Umbrella Services Company? Something sounds a little fishy, that's if you're explaining it correctly. If he or she is paid enough to be taxable for PAYE, PRSI and USC, then given the remainder as a non-repayable loan, to me, something about that does not sit right.

I think further clarification is needed.