Hello PPMA members and friends
Our staff are working harder and harder. We are working hard too, to attract and retain the talent we need to maintain service delivery. Increasingly, we are seeing staff moving from the sector for the higher salaries or progression that we cannot offer. Salaries and pensions have been eroded, work-forces are reducing and opportunities for progression limited. We cannot compete for talent.
We have all been looking to find ways to reward staff without pay, mindful of costs and the need for efficiencies. Offering employees benefits through salary sacrifice schemes has become recognised as a cost effective way to support staff and help them make the most of their money – making it easier to buy bikes, gym membership, mobile phones, holidays, cars for example. So now the Government is proposing to limit the use of these schemes and PPMA have responded to the consultation.………………….this is a shame and we make clear our position in our response.
Public Sector People Managers’ Association response to the Consultation on salary sacrifice for the provision of benefits in kind
Question 1: Alongside annual leave, are there any other salary sacrifice arrangements that the government should be made aware of that do not strictly involve receipt of a benefit?
None that PPMA are aware of.
Question 2: What are the likely impacts on employers and employees of limiting the scope of BiKs that can obtain tax advantages when offered through salary sacrifice arrangements?
Many of our members provide certain BiKs through salary sacrifice arrangements. This gives the ability to be flexible in the benefits available to employees as an important tool in recruitment and retention of talented people in an environment where it is difficult to be comparable or competitive with the private sector in terms of pay.
At a time when local authorities continue to face severe financial challenges, BiKs provide a cost effective way for local authorities to improve the overall value of the reward package for employees, when salaries are otherwise under pressure and certain incentives (such as performance related bonuses or commission) are otherwise unavailable due to concerns relating to equal pay.
The PPMA considers that if the financial incentive of offering certain BiKs by way of salary sacrifice were to be removed, it would have to consider removing a number of employee benefits and refraining from introducing others. This would impact on recruitment and retention, as employees may look to other sectors, especially the private sector, for work. This is particularly important in jobs where it is hard to recruit.
Question 3: Are these impacts different, or are there different considerations, for large/small businesses or particular business sectors?
As mentioned in our response to question 2, there are certainly different considerations for the public sector as against the private sector, in particular, the cap on pay in the public sector and inability to freely offer performance-related incentives. Therefore salary sacrifice arrangements can go some way to bridging the gap in the overall value of the employee reward package and work as a valuable tool for retaining and rewarding employees. Removing the benefits of salary sacrifice arrangements could result in a higher turnover of staff which would lead to increased costs in advertising, recruitment and staff training.
One of the government’s concerns appears to be that the lowest paid workers are unable to take advantage of salary sacrifice schemes and that by removing the tax/NI benefit of BiKs, this will level the playing field. On the contrary, our members consider that being able to offer tax efficient BiKs is one of the very few methods available to it in working towards levelling the playing field with the private sector.
Question 4: Are the impacts different for particular BiKs?
Some members operate a salary sacrifice scheme for vehicles. We understand that one of the benefits is that employees and employers are rewarded for choosing newer, lower CO2 emission vehicles, which have a lesser environmental impact. We also understand the reduced tax/NI revenue for the Treasury may be offset by other taxes, such as the VAT on the finance element of the lease rental and fuel duty.
Question 5: Do you think that the government needs to take any steps to mitigate any negative consequences of this change for employees and employers, such as those who may be locked into salary sacrifice arrangements? If responding, it would be helpful to understand specific examples and factors the government should take into consideration.
The government needs to take steps to mitigate the negative consequences where employees are tied into contractual agreements which span a period of time, for example, a two-year mobile phone contract with a third party provider. On entering the contract both the employer and employee have made an arrangement with the expectation that it will offer a financial advantage to them. If the rules were to change part way through the contract without an appropriate exit clause, this could lead to unexpected costs for both the employer and employee which neither will have budgeted for. Had the employee been made aware of the change in rules at the outset, they may never have chosen to enter into the agreement, nor the employer offer it. If the government decides to implement its proposals, there should be transitional provisions which allow the current arrangements to continue until existing contracts have expired.
Question 6: Do you consider that the approach proposed for legislation would work as intended?
Please see comments relating to transitional provisions in the response to question 5 above.
Question 7: Are there any consequences the government has not considered in proposing to legislate in this way?
As set out in responses to questions 2 and 3 above, we believe that the government should consider the specific impact on public sector employers who are constrained in their flexibility concerning remuneration.
Question 8: Would this timeline present employers with difficulty, for example with updating payroll software?
Introducing legislation with effect from April 2017 does not provide employers with a sufficient amount of time to digest the implications and make changes, particularly at a time when employers are likely to be working to implement other changes, e.g. in relation to the taxation of off-payroll working, the apprenticeship levy and gender pay gap reporting.
There is a significant amount of work that our members will need to undertake, including reviewing benefit packages, amending employee contracts and salary sacrifice arrangements, changes to payroll software, and ensuring that previously exempt BiKs can become part of the P11D processing. Payroll, HR and IT professionals will require training and will need time to adapt and familiarise themselves with the new rules. As a matter of good industrial relations, employers will also need time to consult with trade unions and employee representatives about the changes.
Question 9: Are there any other changes that employers would need to make?
Please see response to question 8.
Question 10: Are there any other compliance considerations which HMRC should be aware of?
Provide clear guidance is available so employers understand which type of BiKs will be affected, then compliance proposals appear reasonable.
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