Flexible Benefits

seanmoody · Posted: Thu May 17, 2007 2:16 pm Post subject: Flexible Benefits

I have been tasked with investigating so called Flexible Benefits. A recent seminar run by our software provider left us with more questions than answers and initial investigations show that they are many providers of Flexible Benefits software who purport that we can offer such benefits to employees in return for a reduced salary. Some of these FB's sound just too ridiculous....CURRY VOUCHERS !!

I'm a bit confused to what the difference is between a salary sacrifice and a flexible benefit. I am aware of HMRC approved salary sacrifice schemes but would have thought that if an employer provides a benefit such as free parking in return for a reduction of say �500 from the employees salary, is not the free parking then returnable on the P11d and the employee would then be liable for the tax anyway.

I'd appreciate to hear about other members' experiences of such schemes.

Thanks, Sean

Ian Whyteside · Posted: Mon May 21, 2007 11:08 pm Post subject: Flexible Benefits

Sean,

It all depends on what you flex or sacrifice to obtain.

Flexible benefits are, in my opinion, an exteme form of salary sacrifice if it is about flexible conditions of service.

Flexible benefits are a way of having a salary package for each employee which incorporates a minimum level of standard T's & C's (holidays, sick pay and anything else the employer provides). The employee then trades cash for increases in such T's & C's.

Obviously if the resulting non cash facilities are also taxable then both employer and employee save on NIC's, though not for the employer if it is a Class 1A item.

Hey, thats Salary Sacrifice isnt it? Well yes but Salary Sacrifice tends to be confined to specific things and not general T's & C's. As soon as you sacrifice pay (either flex or sacrifice) for pension contributions and childcare vouchers then both sides win because there is no benefit in kind (depending on the values)

In the example you have given, free parking, if that was at or near the place of work then actually yes it would be free of tax and no P11D report but if it was somewhere else (not sure why you'd want that) then it may in fact be reportable.

The key is for the employer to decide if they want to have complete flexible terms and conditions or just to sacrifice certain key items, payroll has to properly manage the adjustments to pay and then someone has to deal with possible benefit in kind issues later.

As you have seen, it does not necessarily carry huge savings and can cost if not thought through properly.

Ian Whyteside

Hugo Fair · PayPerShop Regular Joined: 22 Jul 2004 Posts: 73

If you're investigating Flexible Benefits, there a few things you should consider other than the 'salary sacrifice' aspects pushed by a salesman ...

1. FlexBen schemes are not just about 'buying' benefits. They also allow the employee to choose to 'swap' one benefit for another - or even to 'sell' a benefit (i.e. give up holiday entitlement, in excess of the statutory minimum, in return for extra pay). In other words, the scheme puts the decision as to the mix of benefits received into the hands of each employee.

2. For this reason, FlexBen is usually made available to employees via browser software - which can be quite a culture shock if you don't already use such (employee self-service) facilities generally for HR/Payroll.

3. This means that your payroll data is liable to continuous change. For this reason, changes are often limited to an annual review - but, in turn, this means that the employee is making an irrevocable commitment, for a year at a time, whenever a change is selected.

4. The objective of the scheme should be improved employee 'morale', not saving money through reduced NICs, which is why software usually also provides associated facilities (such as a Total Rewards Statement).

As you can imagine, the overall impact of introducing a FlexBen scheme is liable to be a substantial increase in costs (software, administration of data/policies, management of the benefit providers, etc) - which or may not be partly mitigated by savings on NICs.

None of this means that FlexBen schemes are not a worthwhile addition to the 'rewards' mix - just that they shouldn't be considered as a cost-saving measure.