To help win the war for talent, many employers are reviewing their reward strategies and extending their range of benefits for employees, but with the economic outlook less than certain, many are also looking at ways to do this without too much of a hit to the bottom line. If that’s you, or you want to know more, keep reading to ensure you don’t fall foul trying to do the right thing! With a little bit of help from our friends at BDO UK LLP, we have prepared a summary of the things to watch out for. The words in blockquotes are written by BDO UK LLP. Salary sacrifice schemes A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit such as pension contributions or car purchase. As an employer, with the employee’s consent, you can set up a salary sacrifice arrangement by changing the terms of employment. As the cash salary is reduced, you and the employee may reduce your National Insurance Contributions (NICs), thereby making it a cost-effective way of rewarding your staff, but take heed:
Employers need to ensure that employees are still paid above the NMW thresholds, meet the eligibility requirements for the non-cash benefit and ensure that the documentation is in order before applying the salary sacrifice through the payroll.
You will also need to ensure that those signing up are aware that, as they are ‘sacrificing salary’, statutory payments based on salary, such as family leave and redundancy, can be impacted. If you want to discuss your current benefits and whether you should be utilising salary sacrifice, or if you are looking to change your terms and conditions of employment, then the team at MAD-HR will be more than happy to help. Car allowance A viable alternative to company cars (where you are responsible for repairs, insurance, driving costs and a rather hefty set-up cost), car allowances allow you to pass administrative and maintenance costs to the driver whilst still offering a big benefit to your employees. And whilst they don’t need to worry about Benefit in Kind (BIK) with a company car allowance, it is subject to the same tax as their salary.
Where car allowances are offered as an alternative to a car benefit, the Optional Remuneration Arrangement legislation may apply if the employee chooses to have a company car. When calculating the company car benefit, simply speaking, the benefit will be the higher of the car benefit and the ‘amount foregone’ which is the cash allowance.
Mileage allowance Staying on the motoring theme, most employers will reimburse their employees for ‘business mileage’. Are you clear on what constitutes business mileage? Put simply, business mileage is any mileage that your employees do whilst doing their job. Sometimes it can include travel to a temporary workplace, but it does not cover the normal travel between home and a permanent place of work. So, what if the ‘permanent place of work’ has changed? What if that permanent place of work IS home? What expenses are your employees able to recover?
Where employees are reimbursed for business travel in company cars, or where employees repay the company for the cost of fuel used on private mileage in their company car, HMRC’s advisory mileage rates should be observed. These are updated on a quarterly basis and care should be taken to ensure that the changes are reflected. Failure to repay the full cost of fuel for private mileage in a company car may result in the full company car fuel scale charge being applied.
If you are unsure if you should be amending employees’ terms and conditions to reflect their new ways of working, get in touch with the team at MAD-HR and we will happily chat it through with you. Travel expenses We know some employers introduced enhanced measures to help their employees with travel during the peak of the covid outbreak. Some went so far as to pay for, or reimburse, taxi fares so that their staff could avoid public transport. If that’s you, and you are wondering how you now revert back to pre-pandemic terms, proceed with caution to ensure you are not breaching any implied terms. The team at MAD-HR can help guide you through. Long service awards Or, loyal service awards (as they are increasingly being known) can be a great way of rewarding your employees. However, they are possibly one of the hardest incentives to get right. How many people do you know are likely to be excited by the gift of a carriage clock in return for 40 years of blood sweat and tears? Ok, I know things have moved on, but the key message here is to ensure that whatever gifts you choose and for whatever length of service, they need to make your employees feel valued. You won’t be able to please everyone, but if you ask what people would like and offer flexibility, you won’t go far wrong. Make sure you consider what milestones are appropriate too, the average length of time people stay with one employer is 4.1 years and for millennials, that falls to 2.75 years. To ensure you stay in the good books of the tax inspector here is some advice from the experts…
In order to save the employee paying tax and National Insurance, where an employee has been in post for at least 20 years, it is worthwhile designing the award to fit within the conditions of the available long service award exemption.
… and if you would like some help benchmarking your benefits offering, do get in touch with the team at MAD-HR. Signing on bonus With salaries skyrocketing as employers compete to attract and retain the best talent, one tactic to avoid unmanageable ongoing salary costs (and try to negate the inevitable redundancies that often follow) is to offer a signing-on bonus. There is no specific ‘normal’ in terms of amounts paid, but 20% for mid/senior level hires is not unusual, particularly where they may be missing out on an annual bonus from their current employer. Signing on bonuses can help set you apart from competitors in a candidate-driven market without the long-term commitment should the market take a turn. To prevent new joiners from leaving soon after receiving payment, we advise employers to add a clause in the employment contract whereby the employee agrees to refund the amount (partially or pro rata) if they leave before a certain period of time. So, what is the tax position on such payments?
As the sign on bonus is in relation to the employment, where paid in cash it will be treated as earnings and subject to tax and NIC via the payroll as with the salary. Non-cash bonuses will also likely be taxable and subject to NIC but the reporting route may vary.
If you are thinking of utilising signing-on bonuses and want to discuss this further, or if you would like to know more about what others in your industry are doing, the team at MAD-HR are here to help. Entertainment Ok, we get it, you have probably had a couple of years where your ‘staff entertainment’ budgets ended up on the proverbial shelf collecting dust and now we have been released from the coronavirus shackles, and are once again allowed to don our best hospitality, you want to go all out. But before you go, feather duster in hand, retrieving the unspent coppers from the last few years, and start arranging that showstopper party to end all parties, be warned.
Staff entertaining costs over and above the available exemptions such as the trivial benefits exemption or annual functions exemption may be reportable through a PAYE Settlement Agreement (whereby the employer covers the cost of the tax and NIC on behalf of the employee or on the individual’s P11D. Don’t let the taxman spoil the party – click here for further guidance.
Other benefits Whether it’s because you recognise that enhancing your benefits package to include ‘something for everyone’ is best practice or merely because you are trying to keep up with your competitor’s benefits packages, many employers are now offering a range of ‘alternative benefits’ such as restaurant discount cards, dental insurance, cycle to work schemes, staff discount schemes and free or discounted gym membership. But if you think you can’t go far wrong with these, you could be wrong… Some employers, to go the extra mile and accommodate requests from employees, are getting into hot water by making alternative arrangements for some employees outside of the corporate schemes they offer. Take the case of gym membership – You offer all employees free gym membership through a corporate subscription. But you have one employee who prefers the gym ‘just down the road from home’. It’s not in the corporate scheme, so what do you do? You want to keep everyone happy, right? One gym membership isn’t that expensive, right? So, you pay for theirs separately, right? Well actually… wrong! Believe it or not, and despite trying to do the right thing for everyone, we have seen this lead to claims of unequal treatment!
In addition, reimbursing the employee’s preferred gym costs is payment of a pecuniary liability which should be reported on the payroll for both tax and Class 1 NIC: it is effectively treated as cash through the payroll and should be reported in the period in which it is paid.
If you are in a similar situation and need to address any ‘outside of policy’ arrangements before it’s too late, the team at MAD-HR and BDO will be more than happy to guide you through. ____________________________________________________________________ This text was originally written by MAD-HR Ltd. Copyright © 2022 MAD-HR Ltd. All rights reserved: https://www.mad-hr.co.uk/blog/employee-benefits-dont-get-caught-out-by-trying-to-do-the-right-thing Image provided by MAD-HR