Increasing salary is far from the only way to make employees feel valued. If you want to reward your employees in tax-efficient ways, explore what’s commonly known as benefits in kind (BiKs) and salary sacrifice. The idea is that instead of an increase in salary, the employer offers benefits and other options specifically intended to improve the working lives of the employees. Here are five suggestions that could help. It’s also worth remembering that being known as an employer that rewards employees is a great way of attracting and keeping the best talent.
A massive incentive for working parents, childcare vouchers can make a big difference to childcare costs and how much tax employees pay. At the moment, parents can agree to a reduction in salary in exchange for childcare vouchers to the same value, which are then used to pay a fund-approved childcare provider such as a nursery or child minder. The alternative is for the employer to pay the childcare provider direct. The current tax-free limit is £55 of childcare per 53 weeks a year. No tax or National Insurance is paid on childcare vouchers. A new, 30 hours of free childcare system is supposed to be rolled out nationwide from September 2017 but this system is still being piloted and doubt has been cast on whether or not the childcare system has the funding and resources to support it.
Cycle to Work Schemes
These essentially give employers the ability to provide employees with bikes and safety gear, tax-free. It’s a bit like hire purchase on a car. Any employee who wants to take part in the scheme hires a bike from the employer, who buys it for full retail price. There’s a set hire period of a year or two, and when that ends, the employee has the option to buy the bike for a minimal sum. The cost is deducted from gross salary, which means the employee pays less than he or she would by buying it from net pay. The employer saves on NI contributions. The bike must be used for what’s termed a ‘qualifying journey’, which basically means home to work.
Great if you’re based in a city centre and looking for tax-efficient ways to reward employees. Free workplace parking can save the employee a considerable amount in parking costs, and the employer can provide this benefit without attracting a tax charge. The current allowance is one space per employee for a car, motorbike or other vehicle.
Employees can contribute to a personal or occupational pension without being charged tax on the condition that they stick to the annual and lifetime investment limits. This encourages people to make contributions and give themselves a bigger remuneration package for retirement. There is also the salary sacrifice option, whereby the employer allows the employee to convert their contributions into employer contributions to save on NIC.
This is only NIC-efficient if offered as a salary sacrifice benefit. Basic-rate taxpayers can save a maximum of 12% via salary sacrifice but higher-rate payers only save 2%.
Other tax-efficient ways to reward your staff include:
- Monthly/annual passes for train, bus or ferry
- Course and exam costs for business-relevant training
- Mobile phones for business use
- Company car, providing personal use is second to business use
- Shares in the company
- Staff suggestion schemes
- Annual events (like Christmas parties) up to the value of £150 per head
- Medical insurance