The recession has seen more employers use the tax and NI savings from flex to fund business initiatives and additional pension contributions, says Debbie Lovewell
In September 2009, the government made a shock announcement that it planned to phase out the tax breaks on childcare vouchers from 2011. This caused such an outcry in the benefits world that, less than two months later, it revised its plans and will retain the tax breaks on the perk at the basic 20% rate of tax only.
Given the tax and national insurance (NI) efficiencies available on tax-efficient benefits, especially when offered via salary sacrifice, the initial reaction to the news was not surprising.
So many respondents now offer tax-efficient benefits within a flex scheme that the percentage doing so has remained fairly static in recent years. The employer NI savings are likely to have become even more important in the downturn. Back in 2007, 15% said they did not know what these savings were used for. Just a few years later, however, employers are more likely to know where this money goes.
Over the years, the proportion of employers that use these savings to fund their flex scheme has remained fairly static. In 2007, 52% did so, compared with 53% this year.
But the percentage using this money to fund other initiatives in the business and additional pension contributions has risen, almost certainly because of the recession.
For example, in the past year, the percentage using it for the business has risen from 3% to 11%, and those using it to fund additional pension contributions for staff has risen from 5% to 11%.
The 11% that do not offer tax-efficient benefits within flex must know the tax and NI savings available, so it is likely they consider such perks are not right for their organisation.
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More articles on: Employee Benefits/Towers Watson Flexible Benefits Research 2010