Don't settle for less on signing that job contract

When taking on a new job, a prospective employee should look into all aspects of the package on offer, including any pension or share option benefits, writes Laura Slattery.

The first day in a new job may be an exercise in shaking hands from nine to five, but workers making their debut will often have financial concerns looming at the back of their brains, clogging up the space available in their memory for details such as computer log-ons, security codes and colleagues' names.

The time spent touting a CV around town and buying interview suits often follows a period of unemployment, underemployment or full-time study so, by the time people have found a job, they are often strapped for cash.

The last thing they need is the spectre of emergency tax to leave a serious hole in their first pay slips.

Meanwhile, new employees may also be offered potentially bamboozling financial benefits such as pensions and company shares.

Just signing on the dotted line is always an option but, if a large chunk of pay is going to disappear into a pension scheme, or if a share option scheme is being talked up as a major enhancement to a modest salary, it will help to know how valuable or otherwise the schemes actually are.

Tax: One of the first steps new employees should take when they start a new job is to make sure that they are receiving their correct allocation of tax credits and allowances.

People who are starting their first job or who are returning to PAYE employment after a period of unemployment will need to contact the Revenue Commissioners to get a tax credit certificate to avoid being charged emergency tax.

If you are simply switching jobs, you will need a P45 form from your previous employer. This form should include details of your tax credits and how much of the standard rate tax band you have used up at your old job.

Otherwise, the new employer is obliged to deduct emergency tax in each pay period.

"Emergency tax results in excess tax deductions. It is in your interest to obtain your tax credit certificate as soon as possible to avoid having too much tax deducted," the Revenue warns.

Exactly how much excess tax is deducted depends on whether or not the employee gives the employer their PPS number in time for the first pay cheque.

If you don't, that's when the real cashflow problems can crop up, as you won't be awarded the benefit of any tax credits and will be charged tax at the higher 42 per cent rate on all of your income. Normally, you would only be charged tax at the standard rate of 20 per cent on the first €29,400 of your annual income.

Even if you do give your PPS number, you will only be given a very small tax credit for the first month, with the tax deductions getting increasingly steep the longer you leave things fester.

It is, therefore, in employees' interests to make sure that the tax office is kept abreast of the latest developments in their careers, although all emergency tax will eventually be repaid.

The main tax credits people receive are the PAYE tax credit - worth €1,270 over the course of the year - and their personal tax credit, which is worth €1,580 to a single person.

If you enter or re-enter the PAYE tax system in the middle of the year - for example, if you are a student who finishes your final exams and starts work in July - you should still qualify for a full year's worth of tax credits.

This means your take-home pay will be higher than normal in the first few months or you may receive a refund at the end of the year. Once the following January arrives, the tax credits will be spread more thinly.

Pensions: Your employer is legally required to offer you access to a pension scheme but not all pension schemes are the same.

There are two main types of occupational pension scheme: "defined benefit" and "defined contribution". Searching for these words on the pensions-related paperwork is probably the quickest way a new employee can find out whether an employer's pension scheme is any good or not.

"Defined benefit" are the words that indicate that the employer is a good pensions' provider. Around 5-8 per cent of your salary may be deducted and re-directed into the pensions pot, but in many cases the employer will be putting in a further contribution of up to 12-18 per cent on your behalf.

Employers do this because, under a defined-benefit scheme, they are promising to give their staff a pension based on a fraction of their final salary for each year of service with the company.

For example, if the fraction of salary granted under the scheme is 1/60th, a worker who is employed at the company for 30 years will receive an annual pension worth half of their final salary, or 30/60ths.

Thirty years at the one company is too long a stretch of time to contemplate on the first day, but it will still be financially prudent in the long-term to join a defined-benefit scheme even if you only plan to stay in the job for a few years.

Defined-benefit guarantees are expensive for employers, which is why many are now only offering inferior "defined-contribution" schemes.

Under a typical defined-contribution scheme, both the employee and the employer contribute about 5 per cent of the employee's salary. This money is invested in a pension fund linked to the stock market.

The pension the employee receives when they retire is based on the total of their contributions plus any investment returns. This usually results in a much lower pension.

Employers who don't operate any occupational scheme or who are not willing to let you into the scheme within six months of your start date must instead give you access to a type of pension known as a standard Personal Retirement Savings Account (PRSA) and deduct contributions to the PRSA through payroll at your request.

Most employers don't contribute a cent to PRSAs, however, making them even less valuable than access to a defined-contribution occupational scheme.

However, contributions to all types of pensions will result in a lower tax bill, as employees do not have to pay income tax on the money they invest in a pension, subject to generous annual limits.

Shares and share options: The cash part of the salary that arrives by electronic transfer to your bank account is easy to work out, but other terms and conditions of employment can be trickier to assess.

Shares and share option schemes are a case in point.

At the height of the dotcom era, unapproved share option schemes were often used by companies in the technology sector to make their remuneration packages seem more attractive to much-sought-after computer studies graduates.

But employees who exercised their shares in the late 1990s and held onto them suffered the full brunt of the collapse in equity markets and often saw their "paper wealth" completely obliterated.

In some cases, the tax rules that applied at the time meant they were often left with a tax bill that was greater than the value of the shares.

Employees who exercise share options are now obliged to pay income tax on the gain within 30 days.

Employee share schemes can be structured tax-efficiently, however. Revenue-approved share schemes are one of the few employee benefits that are exempt from PAYE and PRSI.

But unapproved schemes, which are more flexible for employers, have proven more popular in recent years and don't carry the same tax exemptions.

In addition, shares in private companies are difficult to buy and sell, so employees should check that some form of company buyback scheme is in operation.

Employees will have to decide whether or not the share or share option schemes are a significant fringe benefit or merely a way for the employer to dress up a below-market-average salary.

The rules are complex, so skilled individuals in a position to negotiate their pay packages should seek tax advice before accepting these schemes as a substitute for simple cash.