Salary sacrifice benefits to help with company finances

Since this article was published, the government have announced Tax-Free Childcare will be launched in early 2017.

With last week’s Queen’s Speech fresh in mind, employers are looking to employee benefits as a way of generating future savings, whilst providing value for their employees. Employee benefits and reward schemes are a great way for employers to show staff their appreciation, whilst offering so much more than just financial support.

There’s a whole range of employee benefits available, with some of the most popular including salary sacrifice schemes such as childcare vouchers, computer and workplace parking schemes, health benefits and shopping discounts. In the current economic climate, even the smallest of benefits can make a real difference and the provision of employee benefits has been proven to increase staff morale and motivation. One of the best features of salary sacrifice schemes is that they usually offer National Insurance savings for both employers and employees. For employees, this could mean making significant savings on the cost of childcare, a bike, an iPad, a mobile phone or even gym membership (depending on the benefits offered by the employer). Many of these schemes, such as childcare voucher schemes, also provide a tax saving for employees as the sacrificed amount is taken from their gross salary. With the cost of living increasing, the opportunity to save money is one welcomed by all, and with benefits for both employees and employers, it really is a win-win situation. As an example of the savings available, childcare voucher schemes can save employees up to £933 a year, with employers enjoying savings of up to £402 a year in National Insurance for each member on the scheme. Large employers such as Councils can often enjoy savings of over £100,000 a year, so it can have a significant impact on budgets.

For employers looking to take advantage of the saving opportunity from childcare voucher schemes, now is the time to act. The Government has recently confirmed that a new Tax-free childcare scheme will be replacing the current childcare voucher scheme in Autumn 2015 and unfortunately the new scheme will not offer any National Insurance savings for employers.

Alison Chalmers, director of employee benefits company Wider Plan, speaks about the changes.

The good news is that employers can still set up a childcare voucher scheme any time before the Autumn 2015 deadline, so there’s still time to build up the National Insurance savings. Furthermore, any existing members of the current childcare voucher scheme will be able to remain in the scheme following Autumn 2015, so employers will continue to receive National Insurance savings from any employees who choose to stay in the existing scheme. Although some parents may prefer to switch to the new Tax-Free Childcare scheme, many will be financially better off remaining in the current scheme. For example, the new Tax-Free Childcare scheme will allow parents to claim 20% relief on their childcare costs up to £10,000 a year, per child – the equivalent of up to £2,000 support per child per year. However, under the existing scheme basic-rate taxpayers currently receive savings of 32%, while higher-rate taxpayers receive savings of 42%. Although Tax-Free Childcare allows parents to claim relief on a higher amount of childcare costs, the savings are capped at 20%. This means that parents with modest childcare costs are likely to be better off under the current system. We recommend that employers seeking a childcare voucher provider look for one which offers a ‘Tax-free savings calculator’ to help parents work out which scheme would be in their best interest when the time comes.

With the new Tax-Free Childcare scheme threatening the amount of employer National Insurance savings from childcare voucher schemes post Autumn 2015, it’s the perfect time for organisations to look at increasing their other salary sacrifice benefits. Whether it’s a workplace parking scheme to help employees with parking costs, a cycle scheme to encourage employees to cycle to work, or a mobiles and computers scheme to keep employees up-to-date with the latest technology, there are salary sacrifice benefits to suit all requirements. Furthermore, with the savings generated from salary sacrifice schemes, employers can afford to expand their benefits to include other popular benefits such as employee discount and reward schemes, which offer savings on both everyday items and recognition for those employees who are willing to go the extra mile. Evidence shows that employees who feel that their work is valued are more likely to remain within that company, and the provision of benefits and rewards can really help employers to hold on to their greatest assets – their employees.

Author: Helen Douglas, Tender Manager at Wider Plan