Employees will need to pay more for workplace perks

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Chancellor Philip Hammond announced plans to scrap some salary sacrifice schemes in the Autumn Statement

Employees will have to pay more for workplace ‘perks’ following chancellor Philip Hammond's announcement of plans to scrap some salary sacrifice schemes in the Autumn Statement.

Hammond said the measure would prevent employees from receiving an "unfair" reduction to taxes. "The majority of employees pay tax on a cash salary," he said. "But some are able to sacrifice salary and pay much lower tax on benefits in kind. This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else."

A salary sacrifice arrangement allows an employer and an employee to reduce National Insurance payments because workers take pay cuts in exchange for benefits. They are frequently offered by larger firms as part of their benefits schemes.

Under Hammond's plans, benefits such as gym memberships, mobile phone contracts and company cars will no longer be eligible. However, some common salary sacrifice benefits will be exempt, including pensions, childcare, cycle to work, and low emission car schemes.

Employee benefits experts have expressed concern that this may lead to some employers cutting workplace benefits.

Mark Groom, a partner at Deloitte specialising in tax and reward, warned of the far-reaching nature of the changes. "The new rules will apply whenever a benefit is provided in conjunction with salary sacrifice," he said. "It will come as a surprise to many that the new rules will also apply in cases where an employer offers employees a choice between a benefit and a cash alternative, if the benefit is not wanted."

Debi O’Donovan, director of the Reward and Employee Benefits Association, said these cuts will hurt lower- and middle-income earners the hardest, and will have little impact on those earning the most.

“It will be the ‘just about managing’ employees that will be most affected by no longer having access to so many health and wellbeing benefits and mobile phones," she said. "Salary sacrifice arrangements have made many employee benefits affordable for lower-paid employees in recent years. This change will have little impact on the higher-paid who will probably continue to afford to select the benefits they want, or receive them as an employer-paid benefit.”

PwC tax partner John Harding said the changes would lead “to increased complexity and costs for employers who want to remain competitive by offering a flexible remuneration package".

James Malia, director of employee benefits at Sodexo Benefits and Rewards Services, however, hopes the new system will create clarity. “The government’s decision to remove the financial benefits of salary sacrifice schemes is not unexpected, and while disappointing for employers and employees it will now bring clarity to both them and providers after a period of the unknown,” he said. “The news that the exceptions now include ultra low emission cars is also a welcome decision from the chancellor."

He added that organisations need to start thinking about how they will reward employees under the new rules. “The industry now needs to develop innovative ways for employers to deliver attractive benefits to their workforce through an alternative mechanism,” he said. “Even without tax efficiencies, many of the benefits in question can still be of great value to employees, and this should not be overlooked. Providers must work with businesses to establish a sustainable method of funding these important schemes, which improve the day-to-day lives of employees.”

PwC's Harding echoed this call to prepare: "All employers should use the time between now and April 2017 to review their current benefit arrangements, assess the cost impact, and make a decision about what benefits they are going to continue to offer and which are no longer viable," he said. "Employers won’t want to scrap too many employee benefits as they know it is an important factor attracting future employees.”

On Twitter, former minister of state for pensions Ros Altmann echoed Philip Hammond's concerns about fairness, but warned that the costs will need to be picked up by employers.

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