Supporting staff through the cost-of-living crisis

Many UK employers are topping up pay packets of valued employees with a cost-of-living payment when they are unable to offer a pay rise.

The Chartered Institute of Personnel and Development (CIPD) summer Labour Market Outlook for 2022 found that 15 per cent of organisations have paid, or are planning to make these payments to some or all their workers, while a further 15 per cent have the matter under review.

For some low-wage employees in receipt of Universal Credit (UC) or Tax Credits, a one-off or lump sum bonus could interfere with their benefits.

Spreading the payment to benefit staff

In that case, incremental payments could be a better option for UC claimants as it should be better overall to receive earnings spread out over multiple months rather than as a lump sum.

When it comes to Universal Credit, the taper rate and the Work Allowance threshold come into play and could impact benefit payments in the months following receipt of a one-off bonus.

In the case of Tax Credits, a one-off bonus could impact a household’s finalised award for the tax year in which they receive the one-off payment.

A salary advance could be another way to help, especially in emergency circumstances. Deductions still apply but there is an easement for ad hoc payments outside of the normal payroll which may apply.

Changing payroll from monthly to weekly is another option as it can help employees with budgeting and immediate expenses.

Other areas worth considering:

Salary sacrifice schemes

Different employees will value different perks. So, allowing them to choose whether to give up a proportion of their pay to receive a benefit they want can be a great incentive.

For instance, if some of your employees have children, childcare vouchers are a great way for them to save money.

Whilst they would be sacrificing part of their salary, they will save on tax.

Benefits could be partially or completely exempt from Income Tax and National Insurance contributions (NICs), depending on the circumstances of the individual.

Employee share schemes

Providing your employees with the opportunity to buy shares in your company is not only great for employee retention, but it also has tax benefits.

The tax benefits of these schemes vary, as do the limits on how much can be invested.

Employees should be aware that they might have to pay Capital Gains Tax (CGT) if they sell the shares.

Need advice on the most tax-efficient way to help employees? Contact us today.

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