Salary sacrifice has been one of the key facilitators of UK benefit programmes, used as a vehicle to engage employees, helping make tax-savings for employers or funding other benefits initiatives, such as financial wellness schemes.
Yet as we go into 2017, change is afoot. In the last ever Autumn Statement, in November 2016, Phillip Hammond announced that several benefits would be removed from under the salary sacrifice umbrella in a bid to recoup tax receipts and bolster the Exchequer’s finances. While seemingly a radical move, it soon became clear that the benefits that provide employers the biggest savings - including pensions - would remain untouched.
While, it’s understandable that HR and reward professionals are feeling a level of trepidation, we firmly believe that these changes should be seen as an opportunity rather than a challenge. Now is the time to undertake a truly comprehensive reassessment of your benefits to future-proof your company’s scheme.
Here are five steps that can provide you with a blueprint for a successful reassessment:
Assess the impact on your business
First, gain an understanding of your current benefits spend and scale of provision. Will changes to salary sacrifice mean that you lose savings from your scheme? If so, how big will this loss be? This sounds like a simple exercise, but with 47% of global businesses admitting they have an inaccurate view of benefits spend, gaining a handle on your current spend can be easier said than done. In a bid for greater clarity, many businesses are now turning to online platforms with analytics and reporting capabilities, which enable them to keep an eagle eye on spend across multiple locations and markets.
Gauge opinion among employees
You have a clear idea of how changes will impact your benefits spend. Now it’s time to assess their impact on your employees and their benefits selection. Focus groups, surveys and one-to-one interviews are all useful tools in discovering how employees feel about salary sacrifice and their wider benefits schemes. Tax savings may be a factor in employees’ choices but, in our experience, many employees would have purchased benefits such as health assessments, irrespective of the tax saving.
Consider the role of tax savings in future
Changes to salary sacrifice have shone a light on a troubling truth; many companies have relied on tax savings to maximise their benefits offerings or used it as a source of business income. Taking either perspective is problematic for a number of reasons. Firstly, you are left exposed if legislation changes, which is now the case with salary sacrifice. Secondly, basing your benefits programme on savings alone is hardly strategic. Instead, cost needs to be viewed as one of four strategic pillars, alongside employee needs, employer needs, cover level and terms and conditions. Looking at these in combination will help you deliver a successful strategy.
Build a benefits strategy that concentrates on employee needs
Employee and company needs are the most important strategic pillars – and a successful benefits programme will need to meet both. If you take ‘employee wellness’ as a key strategic element for example, this can support varying employee needs (to lose weight, get fit or reduce stress), while furthering employer ambitions to improve employee productivity and health.
Look to the future
One of the only constants in life is change – and you need to heed this when designing your scheme. Don’t base your strategy on the now – look to the future and consider how factors such as legislation may change. Set objectives to meet employee needs in different areas e.g. fitness, retirement, family arrangements. Aiming for a selection of these will help you stay flexible in approach and maintain an appealing offering.
Following these five steps will help you develop a benefits scheme fit for now and the future. But if there is one key takeaway from this – it’s don’t be disheartened. To give you an example, employees enrolled on our Darwin platform spend over £1 billion on salary sacrifice benefits, generating roughly £140 million of tax savings for employers. Over 90% of this will remain protected through this year as pensions, cycle to work schemes and private medical cover remain exempt from legislative change. We can’t guarantee that this won’t change in future – indeed within the next two decades it most likely will. But by getting on the front foot now and developing a future-proofed strategy you will be placed in the best possible position to anticipate further change.