What are retail and discount voucher schemes?
Employee discount voucher schemes come in various forms, all of which aim to provide staff with savings on a range of purchases, from everyday shops to big-ticket items and the latest technology. There are three main types of scheme, which might fall under different names depending on the provider.
First, an employer might choose to implement a reward and recognition scheme that counts as ‘free money’ for their staff. This might be points based, or ad-hoc rewards, whereby the employer can provide a perk, such as a free cup of coffee, at a relatively low cost to them, and as a free incentive to the employee.
Second, discount vouchers might be provided for post-tax purchases. This is the same as any discount voucher, simply gaining the individual money off a real purchase, but the deal in question is only available to a specific employee base.
Third is a salary sacrifice arrangement, whereby the employee makes a purchase prior to receiving their pay each month. Although the pay-as-you-earn (PAYE) benefits are no longer in operation, this still has a positive effect on national insurance (NI).
While the gift card and discount voucher industry, worth more than £7 billion, has a large business-to-consumer contingent, employee benefit and reward applications are strong and growing. Two-fifths (39.5%) of consumers received at least one gift card over the past three years related to work rewards or incentives, according to the Gift Card and Voucher Association’s (GCVA) State of the nation ‘22 report, published in March 2022.
How do these schemes work?
Retail discount and voucher schemes are typically provided through a dedicated platform. This can be a simple, off-the-shelf affair, or fully tailored and branded to the employer. These platforms tend to be built and managed by the provider, so there is little need for additional administration, other than ensuring that staff understand and engage with the scheme.
These platforms tend to make it possible for employees to access and choose from the available benefits and perks at a time that suits them, including in the moment as they shop online or in store.
Typically, gift cards are the mechanic through which employees receive the benefits. An employee will use the platform to choose what reward they wish to access, and then receive the funds via a gift card.
Through a platform, employers can typically help their staff access discounts at supermarkets and restaurants, as well as on electronics, health and fitness items such as gym memberships and fitness gear, and entertainment, such as cinema tickets.
Employers can often tailor the perks available to fit with their values or their employees’ primary wants and needs. Ideally, organisations should survey and communicate with their workforces in order to understand what benefits will have the biggest impact.
What are the costs involved?
Because the businesses providing the discounts benefit from the arrangement, it is possible to set up a scheme for staff at no cost. However, this will be limited, and will only provide basic savings.
For employers that are willing to invest, it is possible to get a well-rounded package for up to £15 per month, per employee, according to the GCVA. Some employers might choose to go higher than this for a truly top-end scheme.
There tend to be discounts the more employees an organisation has, making this a more cost-effective option for larger organisations, but this is not just for big players, as there are varied schemes to suit any size or type of employer.
What are the benefits?
For staff, the benefits of these schemes are quite clear, as they can access savings on a wide range of goods and services, while potentiallyreceiving a tax advantage. Salary sacrifice arrangements can also help with budgeting, as the money, say for the weekly shop, is taken out before an individual receives their pay. There are often also wellbeing benefits to a discount scheme, either through incentivised gym memberships, or the chance to find affordable days out, for example.
For the employer, there are myriad benefits to consider as well. Discount schemes can be provided as a basic package that the employee accesses under their own steam, or they can be used to incentivise and reward performance. There are also benefits to focusing on wellbeing or fitness-related discounts. Of course, there is the ever-present perk of being seen as an employer of choice, which is only becoming more important as the war for talent continues.
Are there any tax or legal issues?
Unlike giving staff a cash bonus, which will then be taxed as part of their income, discount vouchers and gift cards are a way for employers to show their appreciation, and help their employees financially. Indeed, the salary sacrifice route can actually provide tax savings for staff.
Nevertheless, there are still some tax and reporting implications for employers. These will vary from scheme to scheme, which is why it is important to consult with a provider.
Vouchers exchangeable for cash still count as earnings, so this is not necessarily a way to bypass tax when giving staff a bonus. However, vouchers exchangeable for goods and services, such as in one of these schemes, need to be reported on form P11D, and may then have tax implications.
At the moment, vouchers gifted to employees that are not made in lieu of pay, or as part of a salary sacrifice arrangement, are tax-free up to the value of £50, with a cap of £300 per year per employee.
However, the government also provides a long list of vouchers which are disregarded as part of an employee’s earnings for NI purposes. This includes fuel for company cars and various other workplace transport provisions, bikes-for-work schemes, recreational benefits, and, most importantly, vouchers provided by third-parties other than the employer.
While an employer that chooses to build and administrate its own platform, as some do, would need to do their research on taxation, going through a provider can simplify things significantly.
Beyond this, there are some potential legal issues that employers need to be wary of. As with any digital scheme, particularly one offering discounts and savings during a difficult economic period, scams and security should be a consideration.
In addition, when it comes to salary sacrifice, employers must be wary of allowing an employee’s final earnings to dip below the legal minimum wage. Even if they are gaining the money back in terms of perks and benefits, this could still count as a wage violation on the part of the employer.
What are the current market trends?
The GCVA, which acts as the voice of this market, is currently lobbying the government via its #giftcard500 campaign in order to increase the tax-free gifting allowance from £50 to £500 permanently, which the association argues would create a high street spending boost of more than £2 billion, as well as encouraging employers to find new ways to thank their staff for hard work during an uncertain time.
The association has also pointed out the importance of providing everyday savings to staff at a time where the cost of living is increasing. In turn, by creating discounts, this is a way to help mitigate the effects of inflation.
While gift cards and retail discounts are typically thought of around the festive period, employers should consider year-round solutions to employees’ financial wellbeing issues, as well as positive motivation and reward strategies.
The GCVA has also noted that, while the cash bonuses being used by many employers to help staff during this period are not only taxed, but are also likely to be funnelled straight into help with bills, by providing retail discounts, employers can also help stimulate the economy by boosting commerce. There is, of course, plenty of space for both of these tactics when it comes to keeping employees engaged and supported during a difficult period.
Who are the main players?
There are many providers to choose from in this area, each with their own selling points and unique approaches. Some of the key players include Motivates, Edenred, Reward Gateway, Sodexo, Virgin Incentives, Perkbox, Prezzee, Blackhawk Network, Appreciate Group and One4All Rewards.
