On 23 November 2016, Chancellor Philip Hammond delivered his 2016 Autumn Statement and with it, significant changes to employee benefits.
The current salary sacrifice system is seen as unfair and from April 2017, the tax benefits that come with using some of these schemes will be scrapped. Over the next six years the move will raise just over £1bn in additional tax for the Government coffers.
There was also talk around the importance of UK productivity. What’s clear is that the UK has a longstanding productivity gap compared with other major global economies. As a result earnings have remained subdued for a number of years.
So, whilst it may be tempting to have a knee-jerk reaction to the changes around salary sacrifice, companies need to remember (as outlined in our recent blog post) that happy, loyal and motivated employees are proven to be more productive and help deliver business success. Now is not the time to make changes that may alienate your staff – especially as there’s a whole tranche of benefits where the employee NI savings remain intact
Invest in your most important asset
Even with the changes to salary sacrifice impacting employees and employers to the tune of £85m in 2017/18, (rising to an additional £260m by 2020/21), it isn’t all doom and gloom.
The changes to salary sacrifice are a golden opportunity for employers to rethink their employee benefit strategy. And instead of seeking a cost neutral solution for their employee benefits, treat it as an investment in their employees (their greatest asset!).
It’s no secret that the right benefits package can help attract and retain the best talent.
What steps do employers need to take now?
1. Do your research
Is your employee benefits provider offering you value for money? We’ve created a handy checklist that will help you decide.
2. Review your employee benefits strategy
- Are you giving your employees the benefits they really want? Does your employee benefits package fit your employee demographic? It can be as simple as asking them – download this survey example for inspiration
- Are you up to speed with the current trend of offering some of the more intangible employee benefits around mental health, health and wellbeing, and financial education? As well as the trend from reactive to preventative benefits
- Shopper discounts are a popular choice in helping pay go further and giving employees an instant benefit
3. Show me the money!
Take a look at alternative ways to generate funds for your employee benefits, such as:
- Employer’s National Insurance savings from the unaffected salary sacrifice schemes (which are among the most popular salary sacrifice benefits). Pensions alone will often account for around 80% of an employer's salary sacrifice savings
- Holiday trading payroll savings, which is classed as an intangible benefit and was outside the scope of the consultation. You could also consider the possibility of including sabbatical leave too.
This may not work for all employers. For example, if you have to backfill employees who are on holiday with expensive agency staff. However, the impact can be minimised by using eligibility criteria.
Obviously, how big an opportunity these options are will depend on scheme uptake, your industry sector and employee demographic. For example, a bike scheme will often see better uptake in male dominated companies, with a manufacturing/engineering background.
4. Spend wisely
Make sure you get the ‘most bang for your buck’, and choose benefits that are a good fit with your strategy and objectives, and your employee demographic. Check out our suggested employee benefits for inspiration.