Rewarding Your Staff

As a business owner, your staff are the most important asset you have, and it is therefore imperative that you treat your employees well so that they feel appreciated. If they feel appreciated you are more likely to retain them, reducing your staff turnover. There are several ways to reward your staff for their hard work in a tax-efficient way. Here is our guide on rewarding your staff.

 

Salary Sacrifice 

Salary sacrifice can be a cost-effective way to reward employees. Although it means some of their salary is being sacrificed, they will receive a benefit that outweighs this instead. Here are just a few of the benefits:

• Childcare vouchers
• Pension contributions
• Bicycles (where there is some element of home to work commuting)

Often these benefits may have more favourable tax treatment or may completely be exempt from tax or national insurance (NI) if certain criteria are met.

PAYE Settlement agreements (PSA)

PSA’s are widely used by employers to maintain compliance around employee expenses. They allow employers to make one annual payment to cover all the tax and National Insurance due on minor or irregular benefits provided to their employees.

Some examples of expenses included on PSAs are:

• Entertaining staff (where annual events exemption of £150 per head or trivial benefits rules exceeded)
• Gifts to employees such as leaving presents (exceeding £50)
• Employee of the month awards
• Long service awards to employees (where less than 20 years’ service or  £50 per year limit exceeded)

Using a PSA means the employees do not suffer a tax charge on something that was intended as a reward, or relates to something that they do not recognise as a benefit. Also entering into a PSA demonstrates good governance and controls to HMRC and may reduce your HMRC risk rating.

Share Schemes

Employee share schemes are becoming an ever increasingly popular way to reward staff. They can be used effectively in recruitment, as well as to motivate and retain staff. They can also be used to boost productivity.

A select group of employees or the entire workforce can be offered direct shares or share options in a tax-efficient way.  There are several schemes available to companies, of which two are discussed below.

Share incentive plans (SIPs)

A SIP is a tax advantaged employee incentive plan, whereby employees can obtain a continuing stake in the company through the acquisition of shares. Where shares are held within the plan for 5 years, (3 years for dividend shares), the employee can withdraw them free of income tax or national insurance. There are 4 ways to get shares under SIPs:

1. Free shares – the employers can give employees up to £3,600 of free shares in any tax year.

1. Partnership shares – shares can be bought with the employees’ salary before tax has been deducted up to the lower of £1800 or 10% of salary.

1. Matching shares – the employer can give employees up to 2 free matching shares for each partnership share they buy. 

1. Dividend shares – more shares may be purchased with the dividends the employee receives from the free, partnership or matching shares if the employer’s scheme allows this.

Enterprise Management Incentives (EMIs)

EMI schemes are another tax advantaged scheme available to small entrepreneurial companies where qualifying conditions are met for both the company and employee. The qualifying conditions include the company having gross assets of £30 million or less and the number of employees being less than 250. Some of the benefits of an EMI scheme are:

• A company can grant share options up to the value of £250,000 within a 3 year period.
• No Income Tax or National Insurance will arise on the grant of the options.
• If the options are exercised at the market value, there will be no tax consequences at this stage either.

There are some “excluded activities” where EMI schemes are not possible. These include banking, farming, property development, legal services, and shipbuilding.

Flexible working

Allowing your employees to work around other commitments such as going to the gym, childcare or family events is a great way to provide employees with a great work / life balance. 

Employee discounts

You can help your employee’s salaries go further by offering them discounts. There are several schemes available to companies that offer discounts on electrical items, food shops, holidays and more. The cost to the employer is small compared to the potential savings the employee can benefit from.

Wellbeing bonus

Some companies have started to introduce a wellbeing bonus for employees. This is where every employee receives a certain amount to spend on their own wellbeing – whether this be physical or mental. A bonus will be taxable in line with the ordinary PAYE rules.

Free or discounted food at work

Providing employees with a lunch in the canteen, or ensuring the staff kitchen is stocked with breakfast food is a relatively small expense for the company; but can make a huge difference to employee wellbeing. As long as the food is available to all staff members, no tax consequence will arise.

Casual dress code

Introducing a casual dress code has often had a positive impact on employees. If they feel more relaxed in their clothes, they can feel less stressed in the work environment. They also do not have the added pressure of purchasing more formal office wear.

As this article suggests, there are several ways of rewarding your staff. Whichever options you choose, ensure you are undertaking them in the correct way to ensure they are as tax efficient as possible. Not sure how to get started? Speak to a specialist member of our team.