Creating a cost-effective flexible benefit scheme that is of value to employees is one thing, but ensuring that it is also tax efficient is quite another. Here are five tips to help employers achieve both.
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- Provider selection should be based on track record and benefit take-up support and not administration fee.
- Employers need to keep track of tax changes throughout the year.
- Employees need support and advice about how to make their flexible benefits as tax efficient as possible.
Carefully select and review providers
Providers with relatively low administration fees may seem appealing to employers during the economic downturn, but they need to be sure of appointing a provider that can engage with their employees.
Alex Bailey, marketing manager at Asperity Employee Benefits, says: “Making a flexible benefits scheme as tax-efficient as possible is a balance between the administration fee employers pay the provider to manage the scheme and the take-up [the provider] helps to generate. There is no sense in [employers] paying a really low admin fee if not many of their employees sign up, because they won’t save much tax if no one is using the programme.”
Employers should therefore appoint an experienced provider with a proven record of maximising benefits take-up, that can communicate the advantages of tax-efficient benefits to employees.
Don’t forget obvious tax-free benefits
Employers can kill two birds with one stone by offering mainstream tax-free benefits, such as childcare vouchers and bikes for work. These perks can bring significant national insurance (NI) savings while appealing to parents and younger, more health-conscious staff.
“A good flexible benefits provider will tailor their communications approach to match [an employer’s] demographic, and send information home to families to encourage sign-up,” says Bailey. “Employers should make sure they offer childcare vouchers, even if they have a male-dominated workforce.”
Mark Kenyon, reward manager at Axa PPP Healthcare, warns employers not to overlook the business advantages of offering tax-free benefits. “If an employee receives a proportion of their salary, say £200 a month, in childcare vouchers, the employer will make a total saving on their NI bill,” he says.
“The savings from some tax-free schemes, such as childcare vouchers and bikes for work, far outweigh the costs to employers, and they can also boost employee engagement.”
Keep abreast of tax changes
Tax changes are typically announced in the Chancellor’s annual pre-Budget and Budget speeches, but they can happen at any time.
In April last year, for example, HM Revenue and Customs announced that under the pension reforms, employees could amend the pension contributions they made through salary sacrifice arrangements at any time of the year.
Mike Ashton, a senior consultant at Towers Watson, says: “Prior to this, variations in the level of pension contributions, particularly reductions, could occur only at specific times in the year.”
Employers must ensure staff understand which non-taxable benefits are available to them, and fully integrate these benefits within their flex package.
Non-taxable health benefits include sight tests, health screening and medical check-ups (one health screening assessment and one medical check-up in any one year), plus private medical insurance for employees working abroad.
Howard Hughes, head of employer marketing at Simplyhealth UK, says: “For these benefits to remain non-taxable, they need to be available to all employees under the same terms. Integrating them into a flexible benefits scheme is possible if they are provided as a core benefit to everyone.”
Make benefits take-up easy
It may sound obvious, but employees need to have plenty of advice and support about how to manage their flexible benefits to make the most of them.
Asperity’s Bailey says: “A provider with the right support on hand to help employees with their queries seven days a week will maximise take up and, in turn, tax-efficiency.”
Read the full Flexible Benefits supplement.