Salary sacrifice arrangements are growing in popularity and employers are looking to add new tax-efficient perks to those that are already widely offered to staff, says Nick Golding
Employers have plenty of choice when it comes to tax-efficient benefits that can be offered through salary sacrifice arrangements. But some are looking to offer additional tax-saving perks alongside established schemes for mobile phones, childcare vouchers and bikes-for-work. This has led to a wave of interest in health screening, canteens, staff training, among other benefits.
In order to qualify for tax savings on such benefits, the rules from HM Revenue & Customs (HMRC) state that an employee must give up part of their salary in return for a non-cash benefit provided by their employer. The employee then saves tax and national insurance (NI) on that benefit, while employers also make a saving of up to 12.8% NI on the employee’s sacrificed portion of their gross salary.
Health screening is one benefit that is currently increasing in popularity among employers. This option is eligible for both tax and NI savings when employers purchase health screening and offer it to employees through a salary sacrifice arrangement.
Its rise in popularity may be due, in part, to the current high levels of awareness around employee health and wellbeing. Employers may find that they benefit from a reduction in long-term absence levels if problems are caught at an earlier stage.
Jon Bryant, head of flexible benefits at Jardine Lloyd Thompson (JLT), explains: “Health screening has certainly picked up, and employers are asking for schemes to follow a wellbeing approach, [to help with] absence management.”
He adds that employers are beginning to realise that it makes sense to offer health benefits that act as a preventative measure and not as just a cure once employees are off sick. “You have private medical insurance and [healthcare] cash plans, but now employers are taking a step back and are trying to prevent the illness before it results in absence,” says Bryant.
But although a number of employers are offering health screening to staff, it is still restricted mainly to higher earners, as even with the tax savings a health screen can be a pricey benefit. “It is more appropriate for higher earners [as it is priced] between £250 and £400. It is a nice-to-have, rather than an essential,” adds Bryant.
Business benefits, such as reduced absence levels and a healthier workforce, are also the key to the success of some of the other salary sacrifice benefits that are currently growing in popularity.
Employer-provided buses to and from the workplace can help an organisation deliver its environmental or corporate social responsibility (CSR) agenda. The government does not regard such employer-provided buses as a benefit in kind and is unlikely to change its position as this fits with its green agenda by encouraging people to use their cars less.
To qualify for the exemption, employers must provide a bus seating at least 12 people, or a minibus, which has a minimum seating capacity of nine people. The service can also be used for a limited number of other journeys, provided its main purpose is to transport staff to and from their workplace. Staff can pay to use such a service through a salary sacrifice arrangement.
With increasing numbers of employers looking to cut carbon emissions, this is a benefit that may gain additional pace.
Another benefit that is starting to be offered by employers to their staff through salary sacrifice is food bought in on-site canteens. Andy Lister, head of employee benefits at provider Grass Roots, says: “Many large companies with canteens lend themselves quite well to this benefit. It is convenient and tax efficient.”
The tax savings are made when employees sacrifice a portion of their pre-tax salary to spend on food onsite. Most employers that have implemented schemes to date have issued staff with a pre-paid card to use as this is considered the easiest way to manage the amount of cash sacrificed and track where payments are made. Local tax offices will examine such types of scheme on a case-by-case basis.
However, the salary sacrifice scheme only applies to food bought in staff canteens so it is not of use to all employers.
Furthermore, those employers that end up offering salary sacrifice on food to staff only at sites where canteens exist could find that they end up alienating staff elsewhere without access to the facilities. Consultants, however, believe this can be overcome with an effective communications campaign. “If you work into the communication that you are currently offering tax-free food on certain sites, then employees are usually fine about it. If you are [promoting] it online you can arrange for it to be communicated to only the relevant employees,” says Bryant.
A further issue for employers is that they may need to upgrade their existing facilities to support any new systems necessary to administer the perk, for example, new tills where pre-paid cards are used.
Tax-efficient car parking at or near an employee’s place of work can also be offered through a salary sacrifice arrangement. There have been concerns that this tax break may be withdrawn, however, providers of this type of scheme believe car parking is a safe option as the government could struggle to apply a uniform taxation system across all types of employee car parking.
Organisations that provide free on-site car parking, as opposed to subsidised parking near to the workplace, can also rest assured as providers say it is unlikely that the government would move to tax employee-paid car parking. “Whenever we look at these benefits we have to look at the difficulty around taxing it, and for many, car parking is free, and you can’t tax something that is already free,” argues Lister.
Employers can also offer work-related training through a salary sacrifice arrangement. In order to qualify for the tax exemption, however, the training must be linked to an employee’s role within an organisation. Lesley Fidler, director at Baker Tilly, explains: “There are restrictions. It has to have some sort of connection to your specific role, or a role you could potentially have in the future.”
These benefits that are becoming more popular with employers as they search for something new to offer staff must also have mass appeal if NI savings are to be made.
More well-established perks such as childcare vouchers, which employees can use to fund registered childcare for their children, have been a runaway success since the government introduced tax and NI relief on vouchers up to £50 a week in 2004. This was further enhanced two years later when the cap was raised to £55.
Aside from the financial savings that are available, childcare vouchers also have other benefits for both employers and employees. They help staff manage a return to work after the birth of a child, which could potentially be a difficult process. In turn, this saves on recruitment and training costs for employers.
What is more, the child is being looked after by registered carers, which can provide peace of mind and allow employees to concentrate at work. This can result in a more productive workforce, and help to reduce the risk of unnecessary absence if staff are let down by more informal childcare arrangements.
Rail firm GNER offers childcare vouchers and values the high number of employees who return to work. Jane Birch, benefits manager, explains: “Training new recruits is an expensive process, and childcare vouchers encourage as many new parents to come back to work as possible.”
Cycle-to-work schemes have also found a firm footing in many organisations, not only because they support employee wellbeing, but because they help to enhance an organisation’s environmental stance. Steve Edgell, business development manager at Wheelies Direct Cycle Solutions, confirms: “Corporate social responsibility in relation to the environment is being looked at by more and more employers. A bike scheme endorses the company’s position on the environment by reducing pollution.”
Furthermore, cycle-to-work schemes, along with tax-efficient mobile phones, have established themselves in the market because they are a tangible product that employees can actually see and feel, so are perceived as providing an immediate reward.
“With bikes and mobile phones employees are getting something that is a lifestyle benefit, something that can be used outside of work too,” adds Bryant.
Whether these established tax-efficient schemes end up being overshadowed by other salary sacrifice schemes that are gaining in popularity, however, remains to be seen.
CASE SUDY: GNER rolls out salary sacrifice
GNER offers a range of benefits through salary sacrifice arrangements and was keen to add a tax-efficient NCP car parking scheme to its package.
This was perceived to be of significant benefit to staff because it has a number of employees who work unsociable hours and so are unable to travel to work on public transport.
However, the organisation has a policy that all new benefits must be introduced for all employees, and not just certain groups within the workforce. Jane Birch, benefits manager, explains: “We like to open all schemes to staff nationwide, but NCP did not have the car parks in enough areas [for us].” One of GNER’s more established salary sacrifice benefits, its cycle-to-work scheme, however, was seen as one solution to being unable to provide tax-efficient car parking.
“It is nearly £15 [a day] to park in York, so employees living in the area now have the option of cycling to work,” says Birch.
Emerging salary sacrifice benefits
Most employers acknowledge that training not only helps to boost staff motivation, but is also a key retention tool. As a result, many have begun to offer it tax-efficiently to staff.
The rising costs of parking near or at work have meant that tax-free car parking is a lucrative benefit for employees
Growing awareness around employees’ health and wellbeing has increased interest in this benefit, although due to its cost, some sections of the workforce may be reluctant to take it on.
This benefit operates on the assumption that organisations already provide staff with access to an on-site canteen. However, it may require employers to invest extra money in upgrading associated equipment such as tills.
Buses to work
Employers that provide buses seating a minimum of 12 people or minibuses that seat a minimum of nine for journeys primarily to and from the workplace will qualify for tax efficiencies.