What makes an effective salary sacrifice scheme?
Did you catch our live webinar discussing salary sacrifice schemes and how to ensure employees are making the most of them? It was hosted by Gethin Nadin, Director of Partnerships, who was joined by industry experts:
James Hewitt, Senior Solutions Consultant, Benefex
Ian Thomas, Executive Director, EY
The discussions started around the reasons why salary sacrifice schemes are often unfit for purpose, which can cover business, employee and HMRC requirements.
“There are a number of reasons why schemes might be unfit for purpose” said James Hewitt, Senior Solutions Consultant at Benefex. “There could have been mergers and acquisitions with a number of TUPE arrangements, which means the benefit offering is now more complex compared to when it first started, perhaps there are even different approaches offered in different locations.”
He continues, “I think it’s also good to understand when was the last time employees were even consulted about the benefits that are offered, and the types of benefits they might be interested in.”
Salary sacrifice arrangements can be unfit for purpose for a whole host of reasons, which can come down to something as straightforward as the take-up levels for each benefit being lower than industry standard. Are your employees making the most of these benefits and are they cost-saving? Also taking into consideration, how are employees given access to all the information they need to make an informed decision about choosing a salary sacrifice benefit? Plus, the impact it might have on their take home pay, and how up to date this information is.
Statistics show that 47% of employers use salary sacrifice savings to fund their employee benefits scheme. James says, “we’ve also seen a lot of providers being very innovative in the types of scheme that are offered.”
“I think things like flexible benefits have brought salary sacrifice benefits to a wider audience.” He says, “flex has always been about giving employees choice. For one individual, salary sacrifice childcare vouchers might not be of interest because they don’t have children of the right age, whereas salary sacrifice cars will be a benefit that they would get a lot more use out of.”
What should you watch out for when it comes to salary sacrifice benefits?
To start with, there are potential tax compliance issues, and making sure schemes are fully HMRC compliant.
James explains his experience in this area; “from what we’ve seen, there are sometimes a number of issues where employers have had benefits in place implemented by stand-alone providers, for example a childcare voucher or a bike scheme, and they’ve had these in place for a number of years. Stand-alone benefit providers will supply communication material and sign up forms to effect a change to an employee’s terms and conditions [for that specific benefit], however their remit isn’t to support an organisation any wider than this.”
How do we maximise take up and ensure employees make the most of the salary sacrifice benefits you’ve put in place?
“My mantra on this has always been communication, communication, communication” says James. “For those that work in the employee benefits industry, the concept of salary sacrifice feels quite old hat now. However I still think for the average employee it is a confusing concept. That’s why for me, I think a really clear and concise communication strategy is key to allowing individuals to better understand the impact on their pay, allowing them to make an informed decision.”
And this really needs to be a continued communication effort, rather than just at the launch of the scheme, because people will be interested in certain benefits at certain times, so really they need to be reminded about the benefits that are available and how they can choose and select those benefits.
Ian Thomas, Executive Director at EY agrees on the importance of communication, adding that “not only does good communication carry a better chance of maximising participation, but you also have a better chance of having a more robust scheme in place, should it ever be scrutinised by HMRC.”