Pay & reward during a cost of living crisis

This therefore begs the question, how can employers help employees (as well as enhance retention and recruitment) whilst managing their own costs during this challenging period?

Well, here are a few ideas… as a famous marketing campaign states, “every little helps”.

Salary Sacrifice

Pension Salary Sacrifice

Employee pension contributions receive tax relief but are subject to employee and employer NIC. However, employer contributions are free from tax and NIC.

Therefore, by exchanging an amount of salary equivalent to the employee contribution for additional employer contribution, employee and employer NIC (as well as the Apprenticeship Levy charge where applicable) can be reduced.

If the gross employee contribution was £1,000, the annual NIC savings would be £120 per year (or £20 if they earn more than £50,270) for the employee and £138 for the employer

Electric Car Salary Sacrifice

Wholly electric cars have a benefit in kind rate of 2% until at least April 2025. Therefore, by exchanging salary for an electric car significant tax and NIC savings can be made when compared to leasing the same car personally from net pay.

For an employee earning £40,000 a year, we have recently calculated that an employee could save £4,700 per year compared to leasing personally (using a Tesla Model 3 comparison), with the employer also saving approximately £1,400 per year in NIC.

With any salary sacrifice arrangement, it is important to be mindful of National Minimum Wage (NMW) compliance so eligibility will be key to manage as part of implementation. With NMW, there is also more than meets the eye given many aspects outside of the payroll impact and interact with NMW compliance.

It is always worth looking at how pay, reward and employee policies (e.g. uniform, working time, IT etc) are set up across the organisation with NMW in mind to help ensure reward can be communicated clearly, effectively to support recruitment and retention in the best way possible.

To delve a little deeper, below, we set out some other further ideas we are helping organisations understand, implement and communicate to their employees as part of broader reward, expense and benefit considerations.

Expenses & Benefits that are tax / NIC free (assuming Optional Remuneration not in point)

Company Mobile Phones	The provision of company mobile phones to employees has a specific tax/NIC exemption regardless of use
Home Working Allowance	Employers can pay employees up to £26 per month tax/NIC towards their additional costs of working from home (not including broadband) if they work from home regularly (say twice a week)
Scale Rate Payments	Where possible and appropriate, make your expense process more transparent and administratively efficient by paying HMRC approved Scale Rates rather than receipted reimbursement. This means that employees get (typically) £5 or £10 tax/NIC free when working away from their normal place of work for subsistence without the need to provide a receipt of costs incurred.
Trivial benefits	The provision of non-cash gifts to employees up to the value of £50 (inclusive of VAT) can be tax/NIC free provided they are not contractual, do not reward performance and are not in the form of cash. It is not a £50 limit per tax year but per "the reason". Therefore, an employer could provide say a £50 gift for Christmas and a £50 gift for a birthday and no tax/NIC would be payable.
Car parking at or near to your workplace	With employees being encouraged to travel back into the office on a hybrid basis, employers can provide or reimburse car parking costs at or near to the normal workplace without tax /NIC applying. Many employers are considering this alongside electric charging and car sharing to ensure it meets sustainable objectives.
Electric Charging at the workplace	Employers can provide tax/NIC free electric charging for employees’ own or company vehicles.
Discounts portal	There are many shopping / voluntary benefits portals that employers can purchase, with Perkbox probably being the most well-known. Whilst providing access to these portals can be taxable if the cost is above £50 per year per employee (or is contractual), they can provide employees with access to great third-party discounts with supermarkets etc to help reduce the cost of the weekly shop as well as other purchases. Say if you spend £100 per week on food shopping (in old language the “Friday Big Shop”) and the discount is 5%, that could reduce costs by £260 per year.

Alternatives / innovative ideas

Staff canteen / providing food on your premises	There is a tax/NIC exemption for this providing the provision is reasonable and all employees have the opportunity to access this facility. Something to consider if looking to encourage employees back to the office and help reduce their food bills.
Apprenticeships and Training	Post pandemic, new skills are vital for employees to progress in their careers and for employers to stay ahead of the game. There is a tax/NIC exemption for workplace training and employers can use their Apprenticeship Levy pot to pay for qualifying Apprenticeship training, or, if their paybill is too small to be liable to the Apprenticeship Levy, seek the Government’s co investment support to pay for 95% of the costs of the training. Further, there are other incentives and grants available for certain qualifying training programmes, plus if an employee is under the age of 25 and on a qualifying apprenticeship, there will be no employer NIC to pay (assuming they earn less than £50k annually).
Using Holiday as a Bonus	It has been highlighted that employers do often provide an extra day off around Christmas or in relation to an employee’s birthday, on top of normal holiday allowances. However, employers could also look to develop a “Holiday Bonus Plan” whereby employees accrue additional holiday that can be used in a future period where certain targets are met. For example, every year for three years, the employee could accrue a further 5 – 10 days of holiday to be used across years four and five (therefore an extra 15 – 30 days holiday potentially). Options could also then be considered in years four and five where this holiday has been accrued.
Holiday Salary Sacrifice	Staying on the holiday theme, it is well known that employers allow employees to sacrifice pay in exchange for additional annual leave. Taking this a step further, employers could look to set up a salary sacrifice arrangement for employees’ actual physical holiday costs (e.g. flights, hotel etc). Although this wouldn’t benefit from tax/NIC savings (there would be an NIC saving for the employee only) given Optional Remuneration rules, it could help employees spread the cost more effectively. We have helped a number of organisations look at this recently and also liaised with HMRC on the tax/NIC treatment, including the point at which it needs to be reported on Form P11D.
Home energy support	Whilst this may not have specific tax/NIC exemptions, employers could look to provide employees with access to solar panels, heat energy pumps by way of salary sacrifice or loans to help reduce future home energy costs.
Financial Planning - pension support	Employers can provide up to £500 per tax year of financial planning advice connected to pension & retirement without a charge to tax & NIC arising.

Hopefully these ideas below have given some food for thought as the war for talent intensifies alongside the cost pressures for employers and employees alike.

What should I do next?

Get in touch! We can help you take positive practical action with all the above in the short and longer term, ensuring any updates to reward, training and expenses are implemented compliantly and communicated effectively.

Also, our Financial Planning team can also support with personal wealth considerations to help assess your future and how to plan in an ever-changing world.

As above, please do get in touch with our Employment Tax & Reward team to have a free 30-minute consultation on this important area.