Employee benefit offerings come in all shapes and sizes. At one end of the spectrum, there are the traditional employee benefits such as contributions to an employee’s pension scheme, childcare vouchers, and subsidised gym membership, and at the other end there are wine clubs, unlimited holiday allowances, and free-bacon Thursdays.
With changes looming on the horizon, such as Brexit, new data protection legislation, and the increase in automatic-enrolment pension contributions, now is a good time for employers to take stock of their benefits strategies and consider what impact, if any, these changes will have on the benefits they offer to their staff.
The government triggered the formal Brexit negotiation process by providing the European Union (EU) with the required notification under Article 50 of the EU Treaty on 29 March this year.
It is still unclear whether new immigration rules will apply but employers with businesses that are heavily dependent on migrant workers should start preparing for the possibility that restrictions might be imposed on economic migration. For affected employers, now is the time to consider whether their benefits offerings need to be reviewed and possibly enhanced in order to attract a more diverse workforce.
The new General Data Protection Regulation (GDPR)
The GDPR will apply from 25 May 2018 in all member states of the EU, including the UK, without any need for domestic implementing legislation. GDPR introduces a much tougher regime compared with the existing data protection legislation with potential fines of up to 4% of total worldwide annual turnover for serious breaches, such as unlawful transfers of personal data outside the European Economic Area and criminal liability for individuals who process data in breach of the law.
Many benefits are provided by third-party providers, such as insurers, and involve employers transferring significant amounts of staff personal data outside of their businesses. With just over a year before GDPR applies in the UK, employers should be looking at where that data is going and asking themselves some questions. Are the service providers based in the EU or a ‘third country’? Are any adjustments required to the benefits provided to adapt to a changed regulatory landscape? Who within the organisation will be responsible for making those adjustments?
Salary sacrifice changes
From April 2017, the tax and national insurance advantages of salary sacrifice arrangements have been withdrawn other than for those relating to pensions (including advice), childcare, bikes-for-work schemes, and ultra-low emission cars. Arrangements in place before April 2017 will be protected until April 2018 and arrangements for cars, accommodation and school fees will be protected until April 2021.
The gradual erosion of the tax-advantageous salary sacrifice wrapper will mean that employers will face higher costs for providing the same benefit package. For employers that cannot afford this additional burden, they will need to re-think their benefit strategies and possibly limit their benefits offering to those that can be offered through salary sacrifice arrangements.
Increase in the automatic-enrolment pension contribution rates
From next April, the mandatory minimum level of employer pension contributions to automatic-enrolment pension arrangements will increase from 1% to 2% of qualifying earnings, for the tax year 2017-2018 this comprises earnings between £5,876 and £45,000, and from 6 April 2019, this will increase again to 3%. Clearly, these rises will have cost implications for many employers which may have to withdraw other benefits to meet the increasing cost of pension contributions.
With great changes ahead, employers would be well advised to look at their benefits strategies and ensure that they are fit for purpose.
Crowley Woodford is employment partner at law firm Ashurst