I want to provide employee benefits to keep key personnel within my company. What is the most cost-effective way to do so? What dangers are there if I keep costs to a minimum? I hear that salary sacrifice is a great way for me to save corporation tax. Is this true?
The level and type of benefits provided to each employee is a choice to be taken by the employer. Benefits are generally selected according to the importance attached to each of the benefits and the cost.
Each type of employee benefit should be offered by a best-of-breed provider.
Group pension scheme
One of the most valued employee benefits is an employer-paid pension plan. As your company has more than five staff and has no existing pension scheme in place, you will have to offer a scheme to all staff over the age of 18, with more than five years to retirement, who earn more than the lower earnings limit. This scheme must be made available to employees within three months of joining service.
You are right that a salary-exchange facility is an effective way to make a company contribution to employees' pensions. The employee takes a reduction in salary and the employer pays a corresponding amount into the pension scheme as an employer's contribution. National Insurance savings are made by the employer and the employee. This will require official documentation to be drafted.
Should the sacrifice for any individual, whether by salary or bonus, exceed £5,000 a year, the Schedule E tax district must be notified directly. It is also usual practice to ensure that all salary-sacrifice notifications are made before the start of the relevant tax year.
To comply with stakeholder pension regulations, you have to make information about the scheme available to all staff, allowing them time to join and deducting monthly contributions and paying them to the provider. You also have to register the scheme with Opra, which is in charge of policing these requirements.
Private medical insurance
With spiralling medical inflation, it is understandable that the cost of private medical insurance is increasing. Providers generally offer basic medical policies and more comprehensive options.
The hospitals to which employees have access can vary on a regional basis and tend to be split into grade A, B and even C hospitals. Spouses and dependants can be added to the scheme for additional premiums. Be careful, particularly in the South-east, that appropriate local hospitals are included in the PMI provided as employees will not thank you if they need to travel a long distance to receive medical treatment.
You also have the option as to whether each individual member is underwritten or is subject to a two-year moratorium, where no claims will be paid for pre-existing medical conditions for that period. I recommend that all employees are underwritten to lessen the risk of pre-existing conditions being disputed at the time of a claim.
You have to decide the levels of cover for each staff member. There will be a free cover limit and any person over this limit will need to be individually underwritten.
Members should confirm to the trustees of the scheme who their preferred beneficiaries are. The minimum number of lives that most competitive protection providers offer for group schemes is five.
If an employee is unable to work for a period of time due to accident or disability, a monthly sum will be paid to them, as you would not want to keep paying indefinitely from your company accounts.
As the employer, you could specify a long deferment period, which keeps premiums down. Remember that nearly two million British people of working age will be off work for at least six months at any time through sickness and disability. A deferment period of 13 weeks is most appropriate.
There is a restriction in that insurance companies will not permit more than 75 per cent of a person's income to be insured in total. If employees have existing policies, they should either cancel them or we will need to declare the existing PHI policy to the new group scheme provider.
There has been a recent step change in the provision of critical-illness policies in the UK. Due to the speed of advancement of medical science, morbidity experience and people generally living longer than estimated, insurers are less keen to offer guaranteed-premium critical-illness policies as they are difficult to price correctly. In future, policies are likely to be reviewable and definitions will need to be updated regularly to keep up to speed with medical advances.
An advantage for you is that, in many cases, premiums are cheaper for reviewable policies than if they were guaranteed for the whole of an employee's life.