The Grandparent Trap: why every employer needs to review their salary sacrifice arrangements

Employers must review and revise their salary sacrifice arrangements despite new ‘grandfathering’ rules announced by the government.

The Autumn Statement revealed new rules for valuing employee benefits provided in conjunction with salary sacrifice or in circumstances where an employee could choose a cash alternative. Grandfathering rules will ensure that ‘arrangements’ in place before April 2017 will be protected until April 2018. 

However employers should not rely on the grandfathering rules and must look to kick start their salary sacrifice review early on in this New Year. 

Charlotte Godley, head of flexible benefits at Capita, said: “Following last year’s Autumn Statement, many HR and benefits professionals breathed a sigh of relief over the proposed changes to salary sacrifice arrangements, but this may have been a tad premature.

“While existing salary sacrifice arrangements in place will be grandfathered for a limited period, it is clear from our conversations with the legislators that the grandfathering is applied on an employee-by-employee basis: it is not for the scheme itself. This difference is absolutely crucial.”

To clarify the impact of this, Godley explained: “For example, for a scheme that operates from 1 January 2017 to 31 December 2017, the salary sacrifice arrangement itself will remain grandfathered until the end of the contract (31 December 2017). But any employee who joins the employer and signs a contract after 6 April 2017 will not be grandfathered.

“Equally any existing employee who did not participate in the sacrifice arrangement until after 6 April 2017 will find themselves subject to the new rules. It is the date of the employee agreement rather than the employer’s agreement that is the key issue.”

You must fit in time for a salary sacrifice review

The first quarter is usually busy enough as it is for HR professionals with appraisals and salary and bonus reviews to contend with. This year a salary sacrifice review will be essential. Options include running dual arrangements, closing access to certain benefits post-April and a number of other alternatives.

Godley concluded: “Understanding the implications of each option will be crucial to successful planning. Accurate record-keeping, clear employee communications and effective testing of systems will be crucial too once the strategy has been determined. Anyone hoping for a gentle start to the year is in for a disappointment!”

This article was provided by Capita Employee Benefits.

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