The low-down on salary sacrifice changes
As the previously announced salary sacrifice changes come into legisation on 6 April 2017, what are the main changes and how are they likely to impact on employee benefits?
When the Chancellor Philip Hammond stood up and started talking about measures to curb salary sacrifice at the Autumn Statement in November 2016, those in the employee benefit world knew we would be in for an interesting time. For the first time, specific mention was made to a long standing practice in UK reward. Collective shudders rippled through the industry.
There was widespread concern among employers who feared the end of workplace benefits. That was certainly how the mainstream media saw it.
This concern was echoed by respondents to a survey we carried out as part of our post-Autumn Statement seminar, an event launched to explain the long-anticipated salary sacrifice changes. Of the 90 HR and Reward professionals we spoke to, 71% said they were concerned about salary sacrifice erosion and 50% said they were concerned that staff would not understand the changes to salary sacrifice.
Actually, by the end of the seminar, following our explanation of the changes, opinions appeared to change. A poll at the end of our session revealed that just 17% continued to believe that salary sacrifice changes would have a serious impact on benefits and 61% said the changes were not as great as originally anticipated.
In fact, in a recent article in Cover magazine, we argued that the changes were not as ‘substantial’ as originally feared and if anything, the government’s reference to salary sacrifice or rather, Optional Remuneration Arrangements (OPRA), was actually a PR exercise, created purely to manage the public’s perception of the imbalances between those “benefitting and not benefitting” from tax-efficient schemes.
But while these changes are not likely to have substantial impact on employee benefits, they will be significant: the scope of these measures are a great deal wider than many employers are fully aware. So employers, take note: it’s crucial to understand what the likely impact of these changes will be so the best possible choices can be made.
From 6 April this year, the following measures will take place. We predict that the majority of employers will be affected in some way by OPRA-related changes.
- There will be a limit to the range of benefits which attract tax and national insurance contributions advantages when offered through a salary sacrifice scheme
- The phrase ‘salary sacrifice’ will be no more. Instead, it will be referred to as OPRA, as indicated above. OPRA includes Type A and Type B arrangements.
- Whereas Type A is more or less salary sacrifice, that is, giving up a portion of salary for a benefit, Type B allows staff to choose between a benefit or the cash alternative.
And’s that it. Except, let’s not underestimate the additional Type B arrangement clause. Under these kind of arrangements, it’s the flexibility or choice which is taxable, and this is precisely what makes them so complex - choice is not so easily recorded. It’s likely to affect many cash-in-lieu arrangements such as company cars and flexible benefits, where the employer provides cover or funding for core benefits.
Interestingly, there are a whole host of benefits which will be exempt from the changes, including childcare vouchers, employer-provided childcare, ultra-low emission vehicles, bike-for-work schemes, registered group life cover as well as contributions to pension schemes and pension advice. In other words, the most popular benefits are the very ones which will not be affected.
It’s important however, to realise the future implication of these changes, if not for the immediate future, then for the long-term. Savings generated from salary sacrifice schemes have been largely ignored by government measures up until now and whilst these latest changes will have little impact on the employee benefits field as a whole, the direction of travel is to move away from tax-efficient benefits.
So whilst we don’t advise closing salary sacrifice schemes just yet – there are still many tax-efficient benefits which staff can continue to access - it may be wise for companies to gradually reduce their reliance on salary sacrifice savings and future proof their benefit strategies, just in case.
Jeff Fox is principal at Aon Employee Benefits.
This article was supplied by Aon Employee Benefits.
Read the next article
- Benefits Technology
- Business mobility
- Bonus & Pay Sponsored by Innecto
- Company Cars
- Employee Engagement Sponsored by Aon Employee Benefits
- Employee Share Plans
- Financial Wellness Sponsored by Salary Finance
- Flexible Benefits
- Group Risk Insurance Sponsored by Aviva
- Health & Wellbeing Sponsored by Health Shield
- International Benefits
- Reward/benefits strategy
- Staff Motivation
- Tax Efficient Benefits
- Total Reward
- Voluntary Benefits
- Workplace Pensions Sponsored by NEST
- Future Predictions
- Workforce Demographics
- For SME employers Sponsored by Busy Bees Benefits
- Research reports
- REBA news round-up
- REBA professional members
- REBA news
- REBA training
Sign up for REBA Professional Membership and join our community
Professional Membership benefits include receiving the REBA regular email alert, gaining access to free research and free opportunities to attend specialist conferences.
Professional Membership is currently complimentary for qualifying reward and benefits practitioners.Join REBA today