Many small business owners will feel the impact of the 6.6% increase in the national minimum wage to £9.50 an hour, and coupled with the Government’s forecast warning that the cost of living will rise at its fastest rate in 30 years this article outlines some ideas for tax-free and other effective ways employers can begin to non-remunerate their employees.
People’s relationship with their work is changing, from creating a more meaningful relationship with their job to understanding the value a new role will offer. To support this progression, it’s important that you actively listen to what your employees need in order to work effectively, communicate with them on how the company is performing and adapt reward packages in a way that motivates them but aligns with your company’s goals. You can read more about amending your employment packages here. Following the national minimum wage increase, cash may not allow a pay rise for your staff, however, there are many other effective ways you can show your appreciation for them.
Tax-free ways to reward and retain staff
1. Offering your employees access to independent free financial planning
In 2019, Wealth at Work published a survey stating that 35% of 290 employers surveyed offered their employees access to financial advice as a workplace benefit, compared with 12% in 2018. For some employees, having access to independent financial advice can be as desirable as good pension scheme or access to private healthcare. Understandably, many companies don’t offer this as a benefit due to cost. However, offering your employees a virtual one-to-one with an independent and regulated financial advisor could be more cost efficient than providing a pay rise. Additionally, receiving regulated financial advice can help employees understand their personal financials better, whether that be advice on saving for their future, investment advice, tax planning or mortgage advice. Offering this as part of your benefits package will demonstrate your appreciation to your employees, showing that you listen and care about them.
2. Death in Service
Many firms offer Death in Service as part of their benefits package. It is paid out as a tax-free lump sum to an employee if they are on a business’s payroll at the time of their death. Businesses mainly offer this benefit at 2x more than an employee’s annual salary, however, some companies generously offer this at 4x an employee’s annual salary. A Death in Service pay-out is free of tax similarly to a life insurance pay-out, although life insurance could potentially form part of your overall net worth, meaning it could be subject to inheritance tax. Death in Service also benefits from not being underwritten. Underwritten means that an insurance company can decide whether or not to offer their policy, usually by asking questions about your health and well being. Underwriting will not occur when offering Death in Service to your employees, making it a relatively hassle-free benefit to provide.
Other tax efficient ways to reward employees include;
- Annual events, such as a Christmas party, up to the value of £150 per head
- Medical insurance
- Offering your employees computer equipment and mobile phones if they work from home, provided there is not significant private use
- Company car, provided personal-use is second to business-use
- Cycle to Work schemes – gives employers the ability to provide employees with bikes and safety equipment tax-free
- Mileage allowances
Other incentives to reward and retain staff
An effective way to increase your employee’s productivity, bonuses can be part of the wider benefits that your business offers to recognise successful staff performance.
The main advantages;
|Incentive and motivation
Greater control over the level of their remuneration
Possibility of higher payments
|Improve business performance
Improved alignment with shareholders
Potential to support organisational change
There are primarily four different ways that a bonus scheme can be based on:
- Individual performance
- Team performance
- Overall company performance
- A hybrid of individual and company performance
How do I decide which bonus scheme is right for my business?
When deciding on the right scheme for your business, you should take into account your Key Performance Indicators (KPIs) which will allow you to evaluate the success of your company in reaching particular goals. Once you’ve set your KPIs, this will give you a clearer picture as to what type of bonus scheme will be more appropriate for your business. A single-factor scheme rewards one specific goal, such as an individual achieving X amount of sales, whereas a multi-factor scheme combines several performance measures within one scheme.
At Price Bailey, we can support you in setting, monitoring, and reporting on KPIs. This can aid managers in understanding how the business is performing from all angles to help with decision making and determining which bonus scheme is right for you.
I’ve decided on a bonus scheme; how do I structure it?
It’s up to you if you decide to pay out your bonuses regularly or annually, and both have their advantages and disadvantages. Regular bonuses tend to motivate employees more, however the bonus may be worth less, and annual bonuses may be worth more but motivate employees less as they feel less incentivised.
The most common ways of deciding individual bonus payments are:
- A flat rate payment
- A percentage of salary payment
- A percentage of gross profit
- Varying payment by seniority or role; and
- Varying payment based on individual or team contribution
What is the key to a successful bonus scheme?
When establishing your scheme, it’s important that you involve your employees in the process so they understand and are willing to achieve the goals of the business. Whilst you can choose a hybrid bonus scheme, remember to not over complicate the scheme and challenge your employees with multiple performance measures as this may result in unachievable targets. An easy way to ensure your scheme is successful is to monitor your employee’s performance and forecast progression towards their goal, which corresponds with progression towards their bonus payment.
Other effective schemes to attract and incentivise employees includes the Enterprise Management Incentive (EMI) scheme, which provides generous tax reliefs and limited upfront cost to the business. If you are considering implementing this, then you can find out more here.
At Price Bailey our Business team has long-standing experience supporting and advising clients on implementing tax-free benefits as part of a reward package. Additionally, we can assist with KPI setting, reporting and monitoring, and the structuring and implementation of bonus payments. If you would like advice or support on anything mentioned in this article, please contact Rebecca Jones, a Senior Manager in Price Bailey’s Business team using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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