Sarah Pickering: How will the high-earners tax changes affect reward strategy?

The principal impact of higher income tax and national insurance (NI) rates is a renewed focus on actual cash in hand and the subsequent buying power of that cash. All employees are affected by higher tax rates, with the hardest hit in real terms being those on lower-middle incomes who are also losing state benefits.

However, reward packages are changing in a number of ways, including improved choice and access to benefits in kind. Some packages incorporate non-cash rewards such as training, flexible working and greater engagement with the local community. All-employee tax-approved share plans are now being used much more creatively and new ways will be found of utilising the full £50,000 annual pension relief.

Improved benefits choice makes take-home pay go further as it allows staff to take advantage of cheaper, employer-provided arrangements, such as retail vouchers. Wider benefits access, particularly linked with salary sacrifice to offer perks with tax and NI savings, is something all employers are looking at.

Tax-approved share plans in an environment of depressed share prices are the tax-efficient incentive reward managers are seeking. While [sharesave] plans are common in quoted companies, the creative use of share incentive plans (Sips) is providing tax saving and incentive opportunities to all sectors. Also, discretionary company share option plans (Csops) are being extended to a wider spread of the workforce.

The tax relief for up to £50,000 in pension contributions each year is a good way for the highest-rate taxpayers to save tax. Additional pension contributions, for example from the proceeds of a long-term incentive plan, will now also be back on the agenda.

Sarah Pickering, managing director at Alvarez and Marsal Taxand UK