Why there's no use crying over spilled milk when it comes to salary sacrifice
The point of this analogy of course is that in our recent Budget, the Chancellor George Osborne confirmed that the Treasury is reviewing the use of salary sacrifice for some benefits.
This, for many, will come as no surprise. The debate over whether salary sacrifice will disappear feels like it has gone on longer than England's quest to host another football World Cup. While many have focused on the good news that the use of salary sacrifice for pension contributions will not form part of the review, what if it does disappear for those benefits not aligned to government initiatives?
Osborne stated that only benefits approved for income tax and national insurance contributions (NICs) can continue in this form.
What impact will this have on employers?
For an employer, on the face of it, there is no financial impact to your business. Benefits-in-kind don't save you any NICs. In fact if you process employee costs for benefits such as critical illness, dental insurance and home technology through salary sacrifice the chances are that you face the annual challenge of extra P11D items in your reconciliation for no financial gain.
Then why do we do what we do? Well, hopefully to improve the quality of life for our workforce, who in turn make your business what it is.
So, how would this potential change impact your employees?
Well, there are the immediate NICs savings, which total 12% of any benefit costs for those earning between £8,060 and £43,000 per annum. Where the average spend on benefits might be in the region of £25 a month, that's equal to £36 a year of NICs they're saving. For those earning above £43,000 the impact is 2%, only £6 in the same example.
On the plus side, you won't have to face the challenge of having to explain to employees that the cost of the voluntary benefit they're paying for comes from their gross salary before income tax and NICs, only for the tax saving to then get swept up in the annual P11D exercise and then an adjustment to tax code in the following year.
Nobody remembers the up-front saving when that HMRC letter comes through the door reminding them they have to pay a little more tax the following year. Of course it won't be long until all benefits in kind are taxed through payroll and we can all pay our respects to P11D forms.
And how many times do you believe you've relayed this message in whatever form and your employees have 100% understood what's going on? My bet would be that most simply trust what you say to be true without wanting or attempting understand the detail.
For me the most value isn't in the 12% or 2% that salary sacrifice offers me it's more about having choice of some great benefits offered through my employer that make my life easier and save me money.
Having recently re-mortgaged my house I know first-hand that the cost of buying critical illness insurance through my mortgage lender when compared to my flex scheme was extortionate. I'd have needed to save around 75% in NICs on my mortgage repayments to make that one balance out.
And, yes it would be great to save a few quid in NICs on an iPad, but the fact my company might let me purchase one and repay it over 12 months without any credit checks or finance agreements is hugely convenient when compared with the rates charged by some retailers.
Embrace the change
So, don't let the potential change with salary sacrifice change hold up your benefits journey. Embrace the change and make sure your employees hear about it from you in the right way, instead of through the grapevine.
Educate your people in a way that lets them make informed decisions that are best for each of their individual circumstances. If your benefits scheme is fit for purpose, targeted at your population and with the best of breed providers then you won't notice the 12 or 2% slipping away.
When a change occurs I might shed a little tear for salary sacrifice for these benefits, it was fun whilst it lasted. But I certainly won't be crying.
Andrew Drake is head of rewards and benefits consulting at JLT Employee Benefits.
This article was supplied by JLT Employee Benefits.
In partnership with
