How the Budget Puts Paid to Perks
By Peter Ryan, The Sunday Tribune
Changes in Budget 2003 will make it more expensive for employers to provide employee benefits. From 2004, employers will be required to pay PRSI and levies totalling 10.75 per cent on ‘all benefits provided, except those previously exempted from tax’
While the detail associated with these changes has yet to be announced, employers can expect this additional cost to arise where they provide company cars, petrol cards, health insurance, subsidised canteens, own product discounts, club membership, Christmas hampers and so on.
Despite the fact that this change will place an additional cost on the provision of employee benefits, HR practitioners generally agree that with limited exceptions, benefits are largely taken for granted by employees.
With the cost of benefits amounting to between 25 and 30 per cent of payroll in organisations which provide sick pay and costly defined benefit pension schemes, the lack of employee recognition represents a very poor return on investment for CEOs, HR professionals and stakeholders generally. The current budget changes serve to exacerbate this problem.
In response to this issue, a growing number of organisations are introducing ‘flexible benefit’ arrangements in which employees are given the discretion to choose benefit combinations which are of value to them, based on factors such as age and their own personal circumstances.
A unit or currency value may be applied to existing benefits and employees are provided with the option, for example, to ‘sell’ extra holidays and ‘purchase’ increased health insurance or ‘sell’ company cars and ‘purchase’ extra pension contributions.
As employees actively engage in the selection of benefit options and make choices based on their personal and/or family circumstances, the value of benefits as an element of remuneration becomes more apparent to the individual. Benefits which were previously taken for granted are now recognised and become valuable in their own right.
Accordingly, employees become more aware of the value of benefits when considering total remuneration and when deciding whether to remain with the organisation or accept that offer of alternative employment.
In marketing and promoting the value of perks and benefits, annual benefit statements may be issued to employees. These statements provide detail in respect of the cost to the organisation and also the ‘high-street’ value, where such benefits would otherwise be purchased by the employee, without the ‘purchasing power’ and discounts which may be negotiated by large organisations.
As the real value of benefits provided becomes more apparent, employees are less likely to take them for granted; this has resultant advantages for the organisation, not just in terms of employee recognition and the potential to reduce staff turnover, but also in promoting employee commitment and enhancing the all important psychological contract.
Whether existing benefit packages are ‘flexed’ or top-up arrangements are introduced, staff become actively engaged in the selection process, thereby untapping the value both to the individual and to the organisation.
Employers were not required to pay tax or levies on benefits provided. In his budget speech, the minister for finance indicated that he expects these changes to generate €83 million for the Revenue Commissioners in a full tax year.
Employer pension contributions and childcare provisions (provided and run by employers) are not likely to be affected by the changes as they were ‘previously exempted from tax’. However, all other benefits are likely to be affected. This will also raise interesting questions in respect of the valuation of stock options and how they will be treated.