How can we use flexible benefits packages to reward staff at a time when we can’t afford to raise basic pay?
One way to give staff benefits is to use a salary sacrifice scheme. Its introduction can allow retailers to offer staff a flexible choice of benefits such as pension contributions, childcare vouchers or medical insurance, rather than spending money on benefits some staff won’t make use of.
Shoosmiths partner Helen Jess explains: “Employees permanently give up part of their cash salary in return for a non-cash benefit from their employer. Although the sacrifice is achieved by varying the employee’s terms and conditions of employment relating to pay, employees do not lose out because the non-cash benefit they receive in return for giving up a portion of their salary has the same value as the salary sacrificed.”
In addition, there can be tax advantages to using these schemes. Jess adds: “Salary payments are subject to income tax and Class 1 national insurance contributions (NICs). If part of the employee’s salary is converted into a benefit, that has a different tax and/or NIC treatment, significant savings can be made: employees pay less national insurance and income tax because they are earning less, and the company pays less national insurance.”
However, Jess warns that you cannot impose contractual changes on an employee without their agreement, and that other benefits - such as maternity pay - will be affected by the salary sacrifice, even if an employee’s notional salary is recognised internally for other purposes.
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