Catherine Murphy (Kildare North, Social Democrats)
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119. To ask the Minister for Social Protection the reason local government employees employed post January 2013 pay PRSI class K contributions and not A1 contributions; his plans to review this policy; and if he will make a statement on the matter. [33960/16]

Leo Varadkar (Dublin West, Fine Gael)
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All employees of local authorities are insured for PRSI purposes, as either modified rate contributors or as class A contributors, arising from their employment in the local authority. Class K PRSI only applies to their non-local authority income.

Civil and public sector workers, including local government employees, recruited before April 1995 pay PRSI on their salary at modified or lower rates of contribution and are classified for PRSI purposes under PRSI Classes B, C or D. These “modified rate” contributors have access to a limited range of social insurance benefits, including widow/widowers’ contributory payments and guardian’s payment contributory.

Civil and public sector employees engaged after 1995 pay PRSI on their salary under PRSI Class A. It is charged at the rate of 4% for employees, with employer PRSI rates of 8.5% or 10.75%, depending on earnings. Class A PRSI contributions entitle the employee to access the full range of long term and short term social insurance benefits.

In 2013, modified rate contributors who also have earned self-employed income or unearned income became liable, for the first time, to pay PRSI on that earned income. This income is liable at the class K rate of 4%. Entitlement to social insurance benefits does not accrue from the payment of this charge.

Since 2014, all employees (in the public and private sector) and occupational pensioners under 66 years, with unearned income only, are liable to pay Class K PRSI on that unearned income where it exceeds €5,000.

Class K PRSI is charged at 4% and does not give access to social insurance entitlements based on the payment of the charge. Prior to 2014 these employees were exempt from PRSI on such unearned income, which includes rental and investment income, dividends and interest on deposits. This provision applies to all employees, regardless of the PRSI class they pay on their employment income.

All workers pay PRSI on their earnings from employment. If an employee has income from self-employment e.g. taxi driver, farmer etc. he or she also pays PRSI as a self-employed contributor on the profits from the taxi driving plus any other unearned income he or she might have e.g. rental income. The measure to charge class K PRSI on employees who have unearned income only was introduced to ensure equity by ensuring that PRSI is chargeable, regardless of the source of the employee’s additional income.

Employees paying class K PRSI on unearned income can generate entitlement to social insurance benefits based on PRSI they pay on their employment income. Class A employees with unearned income already have access to the full range of social insurance benefits, because of their PRSI class A status. Modified rate employees have access to a limited range of social insurance benefits but have entitlement to generous Exchequer-funded occupational pensions.