09 Feb 2023
How employers can help employees with the cost of living
When energy, food and fuel prices are on the rise, how can employers help with the cost of living? We’re going to provide options to help employees’ pay go further, and look at practical support for their wellbeing.
Research from the Chartered Institute of Personnel and Development (CIPD) found 28 per cent of those surveyed said money problems are affecting their job performance. This goes up to 34% among workers earning less than £20,000. Inevitably this will be affecting some employee’s performance.
Pay rises and one-off payments
When money is tight, a simple solution to help employees with the cost of living is to increase pay or offer one-off cost of living payments. However, there are issues here.
You need to ensure that you are in a position to afford these payments. It is important that the positive gesture of pay rises or one-off payments do not have a detrimental impact on the financial health and stability of your business.
There are also tax issues. Particular care needs to be taken when it comes to lower paid workers who may receive Universal Credit. This benefit is means tested and the employee may actually end up worse off after receiving a cost of living payment.
While additional cash might be what an employee most needs, we recommend care is taken for those who are lower paid workers and may be in receipt of Universal Credit. Any one-off bonus payments will be included in the employee’s earnings for the relevant assessment period. Due to the means-tested basis of Universal Credit, this could mean that employee’s claims are negatively affected, and they may end up worse off.
Help employees with the cost of living by providing food at work
Something that is easy to introduce and which may have a significant impact on your employees is to provide food at work.
This approach provides more value for the financial investment involved than one-off cash payments, as money spent on food for employees is not subject to tax and national insurance.
Various criteria must be met to avoid tax and NI deductions on food at work. For every £100 pay given to an employee, it will be subject to tax and NI. If £100 is spent on food for employees, it will not be subject to any such deductions if the relevant criteria are met.
The canteen exemption
Tax law permits that subsidised meals on the employer’s premises or in a canteen can be provided for free, without any tax implications. That is provided the following conditions are met:
- All employees must have the option of a free meal (whether they choose to take up the offer or not)
- The meals must be available to all employees at a particular site (but do not have to be available at all the employer’s sites)
- The meals must be provided in a canteen (could be off-site) or on-site (could be in the kitchen or at reception, etc)
- Meals must be on a “reasonable” scale
- Meals cannot be provided in conjunction with a salary sacrifice arrangement or flexible remuneration arrangements
This would not apply to any food provided that HMRC would deem to be “staff entertaining” i.e. pizza and alcohol in the office after work, unless covered by the annual events exemption limit of £150. Nor can the exemption apply to reimbursements to employees for the cost of food brought into the office.
This still leaves a lot of scope for employers. Where there is a canteen, the employer can simply provide meals for free. If not, an employer could leave lunch bags on reception for employees as long as all are invited to take the meals.
Provide employee benefits via the payroll
Interest-free loans
Many businesses already provide loans to help employees spread the cost of annual travel season tickets. However, this approach could also be used to provide hardship loans to help employees pay for heating bills for example.
Considerations here include the employee’s ability to repay the loan and the value of the loans being offered. Tax rules specify that employers can provide tax-free loans of up to £10,000, without incurring a benefit in kind.
Salary sacrifice
Salary sacrifice schemes allow employees to agree to a reduced salary in exchange for a benefit including bicycles, electric vehicles and pension contributions. This can be a tax efficient approach offering significant tax and national insurance savings.
Tax and NI savings result from the benefit being exempt from, or incurring, a lower tax and NI charge than the amount of salary given up.
Electric vehicle schemes are particularly popular at the moment, offering employees a tax efficient benefit, reduced fuel costs and in some cases free installation of an electric vehicle charging point. Read our advice about salary sacrifice schemes.
Tax efficient benefits
By thinking creatively, it is possible to put together a package of tax efficient benefits, that may help to ease the financial burden for employees.
This could include employee car parking, employee assistance programmes, staff discounts, holiday buy back, birthday vouchers, Christmas gifts and additional homeworking costs.
We’ve got more on this at the later but for now please note that the tax rules relating to tax efficient benefits can be complicated. You must meet strict conditions for any benefit in kind charge to be avoided.
Set up a charity foundation to help your employees with the cost of living
At PKF Francis Clark we have a charity foundation that supports past employees and their dependents. Find out how to set up a charity foundation to support your employees.
Focus on employee wellbeing strategy
The worry and uncertainty of a recession and cost of living crisis will affect your employees in different ways. In order to help them most effectively it is important to understand your employees. One size does not fit all, particularly when it comes to financial issues. It can be helpful to review your employee data and approach them in categories.
We all need to feel good working and that comes from a genuinely caring employer environment. Any employee wellbeing strategy should include four pillars: physical, mental, financial and social wellbeing.
Simple steps you can take include mental health training and the introduction of mental health first aiders. Providing access to professional support can also be very beneficial. This can be provided in a number of ways, including the use of group risk/protection insurances, which often come with counselling, employee assistance, nutrition coaches, fitness support and virtual GP services.
Seven more quick ideas to help employees with the cost of living
There are other types of tax efficient benefits that might also help ease the financial burden for employees:
- Car parking at or near a place of work can be provided without incurring a benefit charge.
- Trivial benefits can be provided to employees provided they are not cash, worth less than £50, and not a reward for services or contractual. This would apply to items such as Christmas hampers or Birthday vouchers.
- Staff discounts on your goods and services. Many supermarkets increase their staff discount percentages at Christmas from 10% to 15-20% when there is typically more pressure on personal finances.
- External discounts via online platforms can offer discounts at most high street retailers and supermarkets. The cost to the employer of providing this is typically a few pounds per employee per month.
- Holiday buy-back allows your employees the flexibility to sell some of their annual holiday back to the company, in exchange for the cash but note that this will be taxable as earnings.
- Christmas meals are typically covered by the trivial benefits and annual events exemptions. However, there are other considerations and further details can be found here.
- Additional homeworking costs. Employees who are contractually required to work from home (so, not hybrid working) could be entitled to reclaim additional costs incurred as a result of working from home. In this case an employer can pay a fixed amount of £26 per month without any tax or NI deductions.
The tax rules relating to these items can be complicated. There are strict conditions that must be met for any benefit in kind charge to be avoided. Care should be taken when implementing any of these benefits, and specialist tax advice sought.
Every business is different, and you need to think carefully about the approach that is best for you as well as the potential tax implications involved. However, this is always going to be time well spent. By focussing on the many ways you can support your employees through this challenging period, you are more likely to retain your people. Our team are here to help you navigate the issues involved. If you would like support, please get in touch.
