Why salary sacrifice could be the solution if employees stand to benefit

While the governor of the Bank of England has been sounding a little more optimistic about the economy recently, the talk of a triple dip recession has left many business leaders I speak to cautious about 2013 with a hawkish eye on costs and new investment.

Keeping a lid on business finances may be important but the average employee – that means the people you trust to keep your business running every day – may be less pleased when it comes to salary review time. With take-home pay falling in real terms over the past few years thanks to a combination of inflation and pay freezes all but the top performers and job hoppers have seen their spending power fall with little prospect of recovery.

Disgruntled employees cost your business money. Whether it is failing to come to work with their A-game, distracting others with their tales of woe or the simple act of quitting to go to a better paid job, they can undermine productivity and stop your business reaching its potential.

But when it comes to reward, pay isn’t the only game in town. Employee benefits can be a way of putting money in your people’s pockets without plumping your costs and in some instances it can save you money.

Perhaps the best route to achieving this is through salary sacrifice – something many businesses overlook. It offers a benefit to employer and employee in the form of NI savings and/or reduced tax. Here’s how it works.

- You the employer decide which common benefits you want to offer your employees. These could be childcare vouchers, pension contributions, cycle to work schemes, cars, laptops or wider benefits.

- You then find a benefits provider to administrate the scheme – their fees will normally come out of the money saved in tax/NI.

- You offer your employees the option to voluntarily reduce their salary by the value of the benefits they want. These are then paid directly by the employer.

With new rules around Child Benefit recently in place, salary sacrifice can also put money in the pocket of some employees with families by bringing them into the earnings bracket where they are eligible again. As with any benefit, salary sacrifice will need careful explanation and communication to your employees. They will need to think about the impact of forgoing salary in favour of benefits and in some instances, get financial advice. Despite this, it can be mutually beneficial.

Andy Philpott is a director at Edenred and can be found on Twitter at @Andy_Philpott. www.edenred.co.uk