Understanding the full cost of flex compliance

Maurice Cheng, CEO of The Institute of Payroll Professionals: While a tailored approach to benefits is essential in the modern workplace, it is important that employers fully understand the cost of flexible benefits schemes to their organisation. To get the most from a flexible benefits scheme the right people must be consulted and involved in putting it together. These include: recruiters to advise on the most relevant benefits to attract and retain staff, the finance team to advise on the real cost of flex including time and administration, and the tax team to advise on tax costs and implications to the employer and employee.

It is also paramount that employers constantly review the packages they offer to make sure they are still relevant. The same people need to be involved to ensure a full understanding of how truly beneficial these offerings are to both the employee and the organisation.

As costs or numbers of employee take-up changes, or the profile and needs of staff alter, so the value of the benefits on offer can change in effectiveness. It could be that a benefit is no longer cost effective if the number of participants has dropped particularly where economies of scale are lost.

What a lot of businesses fail to recognise is the burden flex can put on the company’s administrators. The work does not stop after introducing a scheme. There will be ongoing effort needed to ensure the employer does not fall into a breach of tax liability. Flexible benefits are complex where some qualify for tax exemptions while others, like health and dental insurances, are regarded as benefits in kind. If classified as benefits in kind there can be tax and national insurance (NI) due on the value, but these will need to be reported to HM Revenue & Customs (HMRC).

Research from the Institute of Payroll Professionals shows that 86% of UK businesses want to see changes to the way flexible benefits taxation and NI are administrated. As employers experience the practical difficulties and increasing administration costs (especially where flexible benefits are a major part of employees’ terms), so they are calling for easier processes.

The survey has resulted in an increased focus by the payroll profession on processing the taxable element of any benefit or expense through the payroll system rather than accounting for values on P9D or P11D returns. Currently, some employers process benefits in this way by individual arrangement with their HMRC office, but the practice is not widespread.

It is clear that the processing of benefits can be simplified for employers and, because of that, the IPP is calling for a public consultation on the P9D/P11D as a whole.

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It is recognised flex is an attractive extension to the core package for staff, but employers need the government to help by being flexible in its approach to compliance.

Maurice Cheng is CEO of The Institute of Payroll Professionals