The End of Salary Sacrifice?
There has been much talk about the end of salary sacrifice (also known as salary exchange) for employee benefits, whether this was the April 2017 tax changes or companies moving to Payrolling benefits. It is important to point out that neither of these changes have a significant impact on how much the employee is saving through the benefits offered by My Benefits World: Let us explain:
Company paid benefits such as Life Assurance, Income Protection, Employee Assistance Programmes and the Family Savings have never attracted employee Benefit in Kind tax / been P11D benefits on the premiums the employer pays. No change.
Company Paid Medical Insurance, Health Cash Plans, Dental Plans, Health Screening have always attracted employee Benefit in Kind tax / been P11D benefits. The employee saves National Insurance (NI). No change.
Phones and computers have only ever been tax and NI efficient if the employee returned the item at the end of hire agreement (which no one ever did – why would you?). If they kept the item of technology it was purely NI efficient. Post April 2018, the benefit continues to save employees NI and allows them to spread the cost over set period. In practical terms, no change.
Childcare Vouchers and Cycle to Work schemes remain Tax and NI efficient. No Change.
Employee Paid Gym Discounts, Health Cash Plan, Will Writing, Health & Cancer Screening and 3rings. If you had offered these benefits to staff prior to April 2017 they would originally have been tax and NI efficient. Post April 2017 the benefits lost their tax savings but remain NI efficient. They continue to be highly valued with employees benefitting from corporate rates, monthly payments and ongoing NI savings.
Kid Pass, Dining Club, Cinema Discounts. We have always operated these as net deduction benefits. No Change.
It is very much business, or should we say, “employee benefits”, as usual.
Employee benefits and National Living Wage
If a significant number of your employees are earning National Living Wage (NLW), or just above it, you need to bear in mind that salary sacrifice scheme may not always be an option as after they exchange salary for employee benefits they may not have enough headroom to clear NLW. There is nothing worse to demotivate employees than to create excitement around a benefits launch then employees find they are ineligible for most of the benefits because of NLW restrictions. We have found one of the best ways of supporting employees in this situation is to offer the benefits as a net deduction from salary. The value of allowing employees on lower wages to access benefits and pay for them over a period should never be underestimated. In several post-launch case studies we have seen significant increases in employee engagement and the associated reductions in turnover of staff.
Cycle to Work, Computers/Phones, Health & Cancer Screening/ Gyms/Will Writing
All of these benefits require the company to pay upfront and reclaim the money from the employee’s salary over a set period of time. If cash flow is limited you may wish to consider whether you give employee access to either a limited number of these benefits or restrict the amount an employee can spend. If you are interested in the Benefits Management System this can manage benefit spend. Benefits such as Childcare Vouchers, Babylon, Dining Clubs, Cinema Discounts, Car Leasing, require no upfront payment from the company.
Some of the most successful schemes we have launched have seen employers provide employees with their own benefits allowance which allows them to buy benefits. The Benefits Management System has the ability to allow employees to have their own mini-budget which they can use to buy, or put towards, employee benefits. For example, if your business allowed each employee to have a benefit allowance of £100 it would allow them to buy things like Kids Pass, Dining Card, Babylon, Cinema Discount Pass or a Health Cash Plan outright, or pay towards more expensive benefits to make them even more attractive to the employee. The Benefits Management System will simply deduct any company funded amount from cost of the product and display it in the Total Reward Statement. This has proven to be a great motivational tool to engage employees in the overall benefits offering and creates a talking point as employees compare what they are looking to spend their allowance on. Whilst we appreciate that this is a cost to the business and some clients have said “why don’t we just give our employees a £100 per year pay rise”; in our experience most employees simply wouldn’t notice (or necessarily thank you for) a pay rise which equates to less than £1.80 per week after tax.. By giving them a £100 mini budget to spend on benefits, if the employee elects for a Kids Pass and Health Cash Plan, they could easily save a combined £400-£500 per year. This is what you call delivering the most “bang for your buck”; a visible employee benefits offering which your employees use on a regular basis and each time they use it they are reminded the reason they are saving the money (because they work for your company).
If you are unable to effectively communicate your offering to employees then regardless of how great the range of benefits you offer or fantastic the delivery system is you could be wasting your time and money. The most important aspect of any employee benefits scheme is how you choose to communicate it to your employees. We will work with your business to understand the most effective ways of engaging with your workforce and deliver a tailored communication plan for your employee benefits scheme. This could be online, hard copy, face to face, or a mixture of all three. We understand that your employees will have different priorities depending on their personal circumstances. The Benefits Management System has the ability to personalise the communication of employee benefits to differing demographics within your business.
Useful hints on employee benefits
Expired Vouchers – Important with the closure of Childcare Voucher Schemes to new applicants from September 2018. If you have an existing Childcare Voucher scheme in place enquire whether your Childcare Voucher provider has an expiry date on their Vouchers. If they do have an expiry date enquire whether they Vouchers are automatically reissued to employees. If Vouchers are not automatically reissued by the Voucher Provider, or the Voucher Providers responds by saying we will reissue the Vouchers if the employee asks for them, ask to see a list of all balances from inception of your scheme the Voucher Provider is holding – you have a right to see this – IT IS YOUR EMPLOYEES MONEY.
The amounts involved can be very considerable, even a few months worth of deductions can add up to over £500. In short, you are paying your Childcare Voucher Provider to process Voucher payments, you are not paying them to process the payment and keep any Voucher money which is unused. Your employees have a right to get this money back, hard working parents exchanged their salary for support towards childcare.