EB comment: Popularity of hybrid flex rests mainly on delivery

Under a traditional cafeteria plan the employer pays for the benefits and the employee is given a budget with which to select which ones they want. The second type has emerged more recently, and although it is, at it’s heart, a voluntary benefits scheme it is formally arranged, and run in the guise of a flexible benefits scheme.

I have always felt, and still do, that the second type isn’t the real McCoy and any employer promoting it as full flex is deceiving their staff (although in my experience most employees are too savvy to remain deceived for long). This is because in the second type the employee must pay for the benefit, albeit voluntarily, rather than the employer. This is rather like telling someone they are getting a gift and then charging them for it.

I can see why these ‘hybrid’ schemes had emerged. If voluntary benefits are offered through salary sacrifice (so the employer appears to pay for the benefit as in a flex scheme) both employer and employee make tax and NI savings.

Several employers have now opted for this route in order to offer their staff PCs, bicycles, pensions, childcare vouchers, mobile phones and even wine – all of which benefit from tax and/or NI breaks if paid for by the employer. All but the last two specifically have tax and NI breaks on them so that the government can encourage employers to offer them.

The emergence of voluntary benefits schemes posing as flex schemes has been happening over the past few years, and in some cases these new schemes have leapfrogged traditional flex schemes in terms of flexibility. Instead of only signing up to the scheme once a year, under a hybrid scheme employers can launch a particular benefit at any time of the year. In this way they can concentrate on communicating and educating one particular benefit at a time.

One point to be aware of, not all benefits that currently have tax or NI breaks are part of a government promotion. Some tax experts have expressed concern about benefits such as wine and mobile phones being offered through salary sacrifice, wonder whether Inland Revenue will remove the break. To find out we asked one of our writers to look into the matter. Although he managed to ruffle the feathers of a few providers along the way, he did get clarification from Inland Revenue that: “Salary sacrifice relates to employment law and is a matter between the employer and employee. It is the outcome of such things that often have tax and/or NI consequences.”

What he couldn’t get an answer to is whether there are any plans to withdraw the employer’s tax break on these benefits. But the break is there, and employers can decide whether to take advantage of it or not.