Fiscal Efficiency
David O’Connor
Simon Parsons
© Ceridian Corporation. All rights reserved.
Agenda
• Objective: Create a common point of view about fiscal
efficiency & How it can realise significant value for organisation
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Context
Salary Sacrifice & Flexible Benefits
Fiscal Efficiency Impact
Fiscal Efficiency in Action
Key salary sacrifice & flexible benefits considerations
Summary
© Ceridian Corporation. All rights reserved.
Context – Fiscal Efficiency
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Low or negative GDP growth in short-medium term
UK debt levels are at an unprecedented high, Bank bail out, etc
Governmental Spending (and collecting review) 20th October
Demand on public services increasing…£6.2bn of cuts
Current Tax system under immense pressure
NI Holiday for small start ups (1%) but still unprecedented
levels for employees
• Increased taxation burden on business
© Ceridian Corporation. All rights reserved.
Context: Fiscal Efficiency Opportunity for Organisations
Selected Organisations: Salery
Sacrifice Opportunity (Illustrative)
11%
• 35% of ceridian customer base offer
some form of salary sacrifice benefit
recorded in payroll
John Lewis
• Key benefits offered are Childcare
Vouchers (60%); Pensions (24%) and
Retail vouchers (6%)
10%
% NI to Total Salery
9%
• 10% of those salary sacrifice users are
in the retail space
Debenhams
8%
Next
7%Selfridges
ASDA
• Of the retailers 83% of sacrifice
benefits focus on two key areas
M&S
BHS
6%
– Child Care – 39%
– Pensions – 44%
Somerfield
Primark
5% range
5%
4%
0
50
100
150
200
• Opportunity to use benchmark NI
payments to realise fiscal efficiency
– Move to 5.9% as per best example
Employee #
Sources: Statutory Accounts & Ceridian Payroll Data
© Ceridian Corporation. All rights reserved.
Salary Sacrifice & Flexible Benefits
Flexible
Benefits
A benefits plan that
allows employees
to select from a
pool of choices,
some or all of
which may be taxadvantaged.
(Engagement)
Salary Sacrifice
Not Mutually Exclusive
Employee
Reward
Contractual
arrangement where
employee gives up
cash remuneration
in return for noncash benefit.
(NI saving)
Employer
Reward
• Salary sacrifice & fiscal efficiency benefits are accessible through payroll only
– Role of payroll is to demonstrate compliance/auditability to regulatory body (HMRC)
– Choice of what, when & who is determined by employer only – no concept of enrolment
(pensions)
– No scenario modelling for employees – the first time they see impact in pay is via payslip
• Flexible benefits can provide both broader access to many benefits and pass choice
back to employee
– Drive greater employee engagement & reward through choice and enrolment
– Will manage a greater basket of benefits (salary sacrificable or not)
© Ceridian Corporation. All rights reserved.
Fiscal Efficiency Impacts
Payroll
Payroll reflects reduced pay for the
employee – the actual new contract
position
Alternatively, reflect notional pay
with reduction or Payroll reflects
original pay with deduction (but
contract variation does exist)
Taxation at source
Benefits are reported (if required)
HMRC
HR
No requirement to actively consult
HMRC but they will confirm tax &
NICs arrangement of scheme
namely:
For salary sacrifice to be effective a
change in contractual terms will
need to be shown (by general
notice)
There is an effective variation of
contract – and that it is not being
applied retrospectively
Contractual benefits (non-cash)
consideration when the employer
cannot reduce/offset from the
employee
The correct Tax and NICs
application is being made for the
benefit being provided
Payslip representation is not a
concern of HMRC as long as the
contract reflects the true legal
position
HMRC audit – ensure you have the
employment contract agreements
for the salary sacrifice arrangement
© Ceridian Corporation. All rights reserved.
National Minimum Wage needs to
be maintained
Occupational Pension Scheme rules
may require revision
Position for leavers need to be
considered
Fiscal Efficiency Opportunity in Action
• Dynamic Pay Processing (auto opt in)
– Increase take up through change in policy
– Inclusion of NMW colleagues on a payrun by payrun basis
– Extends into part-time workers and Lower Earnings Limits (LEL)
• Policy & process integration with WFM and Payroll
– Maximum hours contracts for staff – control NI at shop floor level
– Manages shop floor staff from exceeding hours and NI payment
threshold, the complexity/ rules are in the hardwired into the system
• Opportunities are directly linked to attitude to fiscal boundary
defined by organisation, this is not necessarily uniform
• All fiscal efficiency opportunities are validated with
independent 3rd party & internal tax advisors
– Ceridian operationalise / execute advice through payroll & benefits
© Ceridian Corporation. All rights reserved.
Key Considerations
Salary Sacrifice
Flexible Benefits
HMRC considers any benefit to be chargeable
under ITEPA 2003 s62, as per cash (Heaton vs.
Bell)
Bi-directional Integration with payroll for
accuracy & efficiency
Implications on National Minimum Wage
(NMW) employees &/or lower earnings limit
Ability to manage benefit cost increases &
future proof
Implications on Maternity Rights for employees
Enrolment - online, phone or paper?
Implications on occupational pension rules post Segmented approach possible to different
2012 and the impact on organisational leavers
employee groups
Child Care Vouchers challenge (Proposal)
End new entrant benefits in April 2011 &
remove CCV benefit from April 2015
Use benefits aggregator or DIY
© Ceridian Corporation. All rights reserved.
Questions to consider
Where will fiscal efficiency be driven from?
– From Payroll or Flex benefits?
– Which population will we apply this to, can we carve out distinct
employee segments
– One approach for customers has been to offer payroll fiscal efficiency
to staff and flex to management
• Understand the operational boundary where organisations
wish to take fiscal efficiency
– How far is organisation prepared to go to realise employer reward
– How much does organisation wish to engage employees
• Can this be Linked to a wider transformation programme
– Avoid “death by 1000 cuts”
© Ceridian Corporation. All rights reserved.
Summary
• Fiscal efficiency can be driven from both payroll and flex solutions
• Payroll fiscal efficiency delivers employer reward whilst flexible benefits
delivers employee rewards
– FE through payroll is functional, enrolment limiting & no scenario modelling
– Flexible benefits systems enable easy enrolment, employee choice & selection
• Our experience shows most organisations access employer reward via
payroll – focusing on pensions and child care vouchers
• Opportunity is to drive down the NI % across the workforce to a best in
class ratio (5.9%)
– Each percentage point is a significant employer reward
© Ceridian Corporation. All rights reserved.
And finally…
Selected Organisations: Salery
Sacrifice Opportunity (Illustrative)
11%
John Lewis
10%
% NI to Total Salery
9%
• Where is your
organisation on the
chart?
Debenhams
8%
Next
7%Selfridges
ASDA
M&S
BHS
6%
Somerfield
Primark
5% range
5%
4%
0
50
100
150
200
Employee # (000's)
Sources: Statutory Accounts & Ceridian Payroll Data
© Ceridian Corporation. All rights reserved.
Fiscal Efficiency
David O’Connor
Simon Parsons
© Ceridian Corporation. All rights reserved.
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Flexible Benefits