In times of hardship!

Some generous employers that may be considering providing some form of financial assistance to their employees due to their effects during the pandemic or more likely because of the increasingly rising cost of living, maybe looking at the various options open to them to support their staff.

However, there are various issues that need to be considered before putting in place support, so as to avoid unexpected tax, employment law, and consumer credit issues.

If the employer is considering making cash payments to staff, these will be fully taxable and NIC’able through payroll.

Maybe the company can offer loans to tide the employee over? Due to an exemption to the benefit in kind charge for loans under ￡10,000, this may seem a good idea. Employers should take care where other loans have already been made to that employee. If the existing loan(s) were waived, that would also be fully taxable through payroll. Also not forgetting that these are loans and should therefore be repaid by the employee, so probably not such a great idea!

So, what other options are open to the employer whilst remaining compliant within tax law?

One option could be an employee benevolent scheme. This could be as simple as making grants to employees on an ad hoc basis. Alternatively, the employer may want to adopt a more formalised scheme under which employees can apply, perhaps with set criteria.

Employee benevolent schemes establish a fund that provides financial relief to employees facing financial hardships. They are funded by tax-deductible donations from companies and their employees. Employee benevolent schemes are in essence charitable vehicles through which employees are able to apply for emergency support as well as contribute to the needs of their co-workers.

It would be best practice for employers not to be in the decision-making role when an employee comes forward with a request for financial support. That’s why finding a non-profit partner that specializes in employee benevolent schemes is the vital first stage when creating your scheme. A set of guidelines should also govern how your employee benevolent scheme operates. Your non-profit partner should work with you to develop these guidelines.

A further option could include setting up a charity as this can allow benefits to be provided in a more tax efficient way and would be more suitable if the employer is considering operating the scheme over a longer period of time.

The main advantage of setting up a charity is that it should be possible to provide support to employees free of tax. Setting up a charity can also have other advantages, such as, it may be the best option if there is an intention for other employees to be able to contribute.

The downside of the charity option means that the setting up of a charity will involve additional governance considerations and legal steps. There will also be the requirement to register with the Charity Commission, which can take several months. It may be possible to start providing benefits pending registration being obtained, but the tax position would need to be considered before doing so.

If employers are considering any of the options mentioned, you are well advised to seek qualified employment law and tax advice before venturing down this road.