Creating a cost neutral employee benefits package

Stand out from the competition with an employee benefits package that keeps your best talent.

Recruiting can be competitive and trying to attract the best possible employees for your business can be challenging. One of the best attractions and, just as importantly, retention tactics is to offer a great employee benefits package in additional to standard salary compensation.

Employee benefits are commonly associated with large businesses that have the revenue and time to incentivise their employees above and beyond basic salary reward. Although this isn’t an incorrect assumption, in recent years, some smaller businesses have been thriving in the recruitment markets, beating competition by offering employee benefits packages. So, how are they affording to do this?

There are a number of ways in which businesses can offset the costs of a benefits platform against the savings that can be made. Here, we look specifically at salary sacrifice.

Salary sacrifice

This is a process whereby select benefits can be paid for before any deductions from employees’ gross salary.

When employers pay their staff, they are liable for Employer Tax and Employer National Insurance contributions, proportionate to an employee’s wage. Employees are liable for Income Tax and Employee National Insurance contributions, proportionate to their wage. These deductions, for both sides, are taken from gross salary, which is the total salary before any deductions.

Employee savings

There are some employee benefits, such as Childcare vouchers, that employees can choose to pay for via salary sacrifice. This means that they can pay for their Childcare vouchers on a monthly basis, from their gross salary.

The example below shows the monthly employee payments and savings, assuming:

• a salary of £20,000 per annum
• At a voucher cost of £243 per month (the maximum that an employee can claim via salary sacrifice for Childcare vouchers)

The first table shows an employee that is using Childcare vouchers through salary sacrifice. The second shows how their take home pay is affected when paying for Childcare vouchers without the use of salary sacrifice.

The benefit of this to the employee is that they end up taking home more of their wages at the end of the month, as the payment for the vouchers is taken before the Tax and NI deductions, which are proportionate to salary.

Employer savings

The example below shows the indicative annual employer saving, assuming:

• The business has 100 employees
• 10% of employees take up Childcare vouchers via salary sacrifice
• A voucher cost of £243 per month (the maximum that an employee can claim via salary sacrifice for Childcare vouchers)

The benefit of this to the employer is that they end up saving on Employer Tax and Employer National Insurance contributions. This is because the amount of monthly salary going to the employee is less, and these deductions are proportionate to employee salary.

Of course, there are other ways in which businesses can make savings to their employee benefit provision. For instance, relieving time from HR by outsourcing the paperwork, or implementing an online flexible benefits platform which increases employee engagement with the benefits. The more the employees use their benefits, the more employers will save! A rather compelling statistic is that every 1% increase in employee engagement generates a 0.6% growth in sales.

Fancy a chat? For employee benefits or HR queries of any sort, give us a call on 01454 808 658, or email us at hello@wearepes.co.uk