For years, the government has spoken about making changes to salary sacrifice schemes, and in this year’s Autumn Statement they did just that, announcing major changes to be made from April 2017. Considering the current salary sacrifice arrangements cost the government around £15 billion a year and these amounts have increased by over 30% since 2010, this did not come as a surprise to many.
The major changes can be summarised as follows:
- Salary sacrifice arrangements for four schemes will not be changed: (1) Pensions, including advice (2) Childcare (3) Cycle-to-work and (4) Ultra-low emission cars.
- Salary sacrifice arrangements for all other schemes will be removed from April 2017.
- All schemes in place by April 2017 will be protected until April 2018, or those which the government has called ‘long-term arrangements’, which are those for cars, accommodation or school fees, will be protected until April 2021.
What should I do?
There are things that you will need to do if you have salary sacrifice arrangements at your company – whether or not they are remaining or being removed.
If your salary sacrifice schemes are not being changed, it’s important that you communicate this as soon as possible to your employees and your leadership team. Let them know that the changes have no impact to them from both an employee and company perspective, as you don’t want them questioning and/or worrying about the situation.
If you have any salary sacrifice schemes that are being removed, here are the key steps I recommend you take as soon as possible:
- Pull together data on your current salary sacrifices so you can understand and assess exactly how your employees and your company have been using and benefiting from them.
- Consider the emotional and financial impact so you can consider the impact to both employees and the company. Will the company be losing minimal or significant tax savings? Where is the saving going (e.g. is it being re-invested in other programmes being used elsewhere in the business)? Will a small or large number of employees be impacted? Pull together this data and answer these questions so that you have all the key information to be able to quickly move to the next step (see below).
- Map out potential solutions to help you determine how you will handle these changes. Will you remove the benefit all together, continue as a benefit without the salary sacrifice arrangement, look for a product which offers the same benefit but without a salary sacrifice arrangement, etc? Consider the implications of costs and values both to the company and your employees. This will help you be prepared and armed with solutions to discuss and present with your company’s leadership team.
- Develop a change management plan to help you address and manage the change with your employees. Do not underestimate the impact of these changes to your employees, accept that many will be disappointed, angry and many other emotions, and create a robust approach and plan to handle this. By doing this you will be prepared to support your employees as they progress throughout the change curve, working towards getting them to accept the change and move onto the solutions which you’ll be presenting to them.
- Communicate with your employees, letting them know about the change, the timing of the change, and next steps you will take during this period of change. Keep in mind that as with any communication, it’s important that it is done in a timely and honest way if you want to achieve the desired results.
- Communicate with your leadership team, again, letting them know which are being removed and the timing of the change, as well as information which will help them understand the impact (e.g. how many employees are in each scheme, tax savings for the company, average or range of savings by employees). In addition, share with them your initial thoughts on next steps.
- Communicate with your provider(s), getting initial information on how you will partner with them during this period of change.
So in conclusion, yes there are some big changes to be made in salary sacrifice schemes, but it’s not all bad news. You can still take advantage of the ‘core’ salary sacrifice schemes, which in most companies are the most popular and also deliver the most tax savings, and in addition there are a variety of products on the market which offer savings and choice outside of salary sacrifice arrangements.
From my perspective in managing change as a rewards professional over the last 20 years, my advice to you would be not to underestimate the amount of planning and work it will take to get through this change. If you follow the steps outlined above you’ll be setup to meet the needs of your company and your employees.
By Debra Corey, group reward director, Reward Gateway