Some canny employers recognise that a well-designed salary sacrifice scheme can increase net pay and reduce employer costs, attrition and absenteeism.

 

  1. WHAT IS IT AND HOW WILL IT WORK FOR YOU
    We probe at our initial meeting to try to understand what is available to the particular organisation and what types of employee benefit and employer cost
flexible benefits

reduction would be of interest. Fluid defines salary sacrifice as a system of converting a traditional deduction from pay into a tax effective reduction of gross pay. The system can be tailored to maximise employee satisfaction and lead to a net benefit for the employee as an increase in net pay, and a net benefit for the employer by reducing costs.

 

  1. UNDERSTAND THAT SACRIFICE NEEDS A CHANGE IN THE TERMS AND CONDITIONS OF EMPLOYMENT
    Employees give up the right to receive part of the cash due under their contract, but in return the employer provides the employee with an equivalent benefit (such as a pension). The result is that the employee is in the same financial position overall but the gross pay has been reduced as has the resulting national insurance contribution (for both parties) which results in a saving. The employee must agree to be flexible on their contractual rights to make this work effectively, and it may be necessary to draw upon the services of an employment lawyer (we have a couple we can recommend!)

    2.  

  2. REMEMBER THERE ARE THREE WAYS TO VARY THE CONTRACT
    a) Completely rewrite the whole document and obtain employee agreement/signature;
    b) Through creation of a separate document set out the agreed changes and obtain employee agreement/signature;
    c) Inform the employees of the planned changes.
    Employers can stipulate that if an employee has not indicated his/her wish not to participate in the changes by a defined date, the absence of an 'opt out' will be regarded as an 'opt in'. In our experience, such an approach is often used when wholesale changes to all employees’ terms and conditions are proposed such as with a pension scheme. Option c tends to be most effective when employees:
    • Have been fully informed of the proposals
    • Are given a specified date by which time the 'opt out' must be made
    • Continue working after the opt out date
    • Continue working after the first pay-day when the changes have been implemented without protest
    When these conditions have been satisfied, the employees have indicated their agreement to the variation by their conduct and the revised agreement is binding.

    3.  

  3. BEAR IN MIND THAT SALARY SACRIFICE SCHEMES WILL BE SUBJECT TO AN AGREEMENT BETWEEN HMRC & THE EMPLOYER
    To prevent problems at a later stage we recommend that all legal documents state that this takes precedence over all other agreements and arrangements with employees. Other factors to consider include the possibility that low-paid workers may fall below the national minimum wage once the sacrifice takes effect, and there may be an impact on statutory benefits such as maternity pay or any other benefits determined by national insurance contributions.

    4.  

  4. PUT IN PLACE A STRATEGY AROUND COMMUNICATION
    • Will you share some/all of the employer savings?
    • Do you have trade union activists that will see this as a negotiating opportunity?
    • One strategy is to use the savings to fund the implementation;
    • Should you survey the workforce to gauge their level of interest? Recently we have used SurveyMonkey.com with considerable success;
    • Is there a clear return on investment?
    • Timing of the implementation may be important to your organisation (think of workload pressures and holidays);
    • Lead times for any new software implementation will be important.

    5.  

  5. NEVER UNDERESTIMATE THE SIGNIFICANCE OF EMPLOYEE ENGAGEMENT
    • Creating the right image is crucial
    • Email, blogs, social networking, individual briefings, team briefings, posters, brochures, notice boards, newsletters, roadshows, awareness day, FAQ page on your website
    • Electing company champions, who people know and trust
    • Provide a helpdesk for ongoing questions

    6.  

  6. GIVE IT A NAME
    The phrase salary sacrifice creates potentially negative connotations. Questions we have asked in the past include:
    • What image does this name portray?
    • You probably want to introduce this to make improvements for your employees – will this name help send that message?
    • Selling this concept is therefore important so you must use that marketing approach to get maximum employee buy-in
    Flexible benefits are a similar concept and sounds perhaps more positive; to date we have come across the following phrases: Choices, Salary Exchange, Flex, Free2U, Beneflex, FlexBen, FlexSA, and Flexchange.

    7.  

  7. AFTER SELECTING THE NAME, SELL THE BENEFITS
    When you decide on your marketing strategy think about a logo that employees can easily recognise and relate to. They will soon learn that this logo means a benefit for them, and be attracted to it as you introduce new items.

    Do 'before and after' sample pay statements using familiar stationery using your pay statement terminology and rates of pay so that employees can see how it will affect them financially.

    8.  

  8. LAUNCH THE SCHEME CAREFULLY AND DEVELOP AN ELEMENT OF ROBUSTNESS
    • Once the scheme is launched you should continually review, say on an annual basis, to ensure you are still achieving the desired results.
    • Introduce new benefits and withdraw those no longer effective.
    • Larger organisations offer many benefits; some are tax efficient whilst others offer attractive discounting. All these help with staff retention. Examples that we have come across include: childcare, charitable giving, gyms, carbon footprint, holidays, bike scheme, shop until you drop, wine club, mobile phones, private medical insurance, health screening, dental insurance, critical illness insurance, magazines, health cash plan and spouse/partner life assurance.

    9.  

  9. ILLUSTRATE THE BENEFITS
    We recognise that as a sweeping generalisation most employees fall into one of four categories:

     

    • Single, living at home or in shared accommodation
    • Married or living with a partner, no children
    • Married or living with a partner, children living at home
    • Married or living with a partner, children have now left home

    Producing a document for each of these individual groups to illustrate the benefits that are typically in high demand is a good idea in our opinion, and recognises that changes do occur and that the scheme can accommodate such situations quickly.

 

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