By the end of next year, all UK companies will have entered into the world of employee benefits as a result of auto-enrolment. While they may have already introduced their auto-enrolment pension plan or still be in the process of setting it up, many businesses may be wondering what’s in it for them. Fortunately, while you may view auto-enrolment and employee benefits as an inconvenient compliance imposition, lift the lid and you will discover that there are many benefits for you as a business owner.
When it comes to employee benefits, here are three examples of smart spending that could be beneficial to both you and your business. You probably have some personal life assurance, perhaps to pay off a mortgage or provide for your family. If you pay for this personally from your income it has already had income tax and employer and employee national insurance deducted. What this means is that if you’re paying £100 each month in life assurance premiums, based on a 45% income tax rate, the total cost for your business including employer national insurance contributions is up to £214. So your life assurance might be costing double what you think it does.
There is another option. Instead of paying tax and national insurance on a personal life assurance policy, you can set up a company scheme. The cost will depend on the age of your workforce and how much you pay your employees. As an example, a company with a £500,000 payroll and an average age of 46 could currently provide all employees with a life assurance of four times salary for about £155 per month.*
So you what’s in it for a business owner? The cost has decreased, the company is providing a valuable benefit for its employees with no income tax or national insurance and the cost can be offset against corporation tax. For a group life assurance scheme, there is often a high level of cover available without you having to provide medical evidence – possibly £1.5m based on 20 employees – and if you smoke or have any medical issues, this enables you to still buy life assurance at standard rates.
There are also clear advantages to employees who might choose to review their personal life assurance as they have the company plan. How important to the employee this is, as with other benefits you provide, will be linked to their loyalty to your company. For an employee earning £20,000 a year and paying a £30 per month personal life assurance premium, this could act as the equivalent of a 2.6% pay rise, which means that the pressure for pay rises is reduced.
Smart spending can also be extended to a business’s auto-enrolment pension plan. Employees will be paying at least 1% of their salary into their pension scheme and from April 2018 this will rise to 3% of salary and 5% in the following year. These employee contributions are liable to national insurance (both employee and employer). Based on current rates and a payroll of £500,000, the employer national insurance on these contributions would be £690 until the tax year ending 2018, £2,070 year ending 2019 and £3,450 from the beginning of the subsequent tax year.
This national insurance can be avoided by introducing salary exchange, where employees reduce their salary by the level of the pension contribution and you pay the contribution. Essentially this means that by 2019 the overall cost of your compulsory auto-enrolment contributions would be reduced by over 20%. If employees voluntarily pay higher contributions you save even more, so some good communications promoting your pension plan can pay dividends. And your employees also save on national insurance, giving them more in their take home pay.
Does your business pay premiums for private health insurance? No tax or national insurance savings apply for a company health insurance plan but there are cost advantages even for a group as small as five people. For a 50-year-old, comprehensive health insurance could typically be costing £250 per month as an individual arrangement. As of September 2016, if the same insurance was arranged as part of a group plan for five people, the cost would be reduced to £125 per month.** Once the plan is established, it can be offered to other employees as a voluntary benefit at the employee’s expense, which enhances the overall benefits package and again reduces pressure on pay.
A major advantage of a group plan for health insurance is that it’s possible to set it up on a basis that disregards prior medical history. This enables members of the scheme to obtain insurance for conditions that may be excluded by the underwriting process applied to individual plans.
While you should always seek advice before implementing any of these kinds of approaches, this gives you a sense of how employee benefits can work for you. Offering them can be an efficient way for you to reward your staff, increase their engagement and productivity whilst providing opportunities for you to reduce company and personal expenditure.
*Figures shown for income tax at rate of 45%.
**Figures quoted available as at Sept 2016
This article comes courtesy of JLT, the provider of insurance, reinsurance and employee benefits related advice, brokerage and associated services.