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Cost Reductions
When employers look at cutting costs, this invariably impacts upon employees. Quite rightly, even in the current climate, employers still generally regard headcount reduction as a final resort. They clearly want to avoid damage to their business in the longer term and having to recruit new suitable candidates with no experience of their business, potentially at a premium, when the economy turns.
Employment costs being significant, many employers are now reviewing remuneration packages to determine what efficiencies can be made in terms of costs in the short, medium and longer term. Not surprisingly, short term savings are receiving the greatest level of attention. Some of the main areas are highlighted below:
Flexible benefits
Clearly flexible benefits are now relatively commonplace as far as remuneration arrangements are concerned. Often they are used tactically around salary sacrifice to reduce the costs of employment. Probably the most common structuring is replacing employee contributions into pension schemes with employer contributions, creating NIC savings for both employer and employee. Other popular elements include the provision of cycles to travel to/from work, childcare vouchers, and more recently, environmentally-friendly company cars, all of which can reduce employer costs and serve to make a remuneration package more attractive.
Holiday trading is also a common, tax effective arrangement. This typically works when an employee 'buys' additional holiday. In the current climate, we have seen a whole raft of similar arrangements around reduced and no pay sabbaticals and additional holidays.
Expenses
Expenses have been very much in the news. Reviewing an expenses policy to ensure that the policy and processes in place are fit for purpose can save time, administration and compliance headaches. A review would typically consider the position from a tax perspective but also to make sure that it provides expenses to individuals in the right circumstances, so that employees are clear about what expenses they can claim and under which instances. For example: is it cost effective for employees to use their own car and charge back 40p per mile? Are there safeguards in place to prevent employees undertaking unnecessary journeys?
Reward
The costs associated with employee reward arrangements (be it share or bonus based), are generally significant. Obviously incentive based reward is critical in driving the right behaviours but arrangements have been badly impacted by the recession. Now is probably an ideal time for employers to look at reward structures and ensure they are fit for purpose as we move towards recovery, or to consider whether restructuring is necessary to deliver reward in the current climate.
Recovery of overpaid PAYE/NIC
Where there is a high volume of staff turnover and the HR and payroll systems are not sufficiently finely tuned, it is not uncommon to find that the relevant adjustments are not processed before the final payment is made. The result is often that the employees have received too much pay and consequently HMRC has received too much PAYE and NIC. In these circumstances it is possible to make a claim for repayment of the overpaid PAYE and NIC. Such a claim can be made in relation to the last six tax years.
PSA Review
A PAYE Settlement Agreement (PSA) is an agreement whereby the employer pays the tax on certain benefits on the employees' behalf. Reviewing the underlying systems and procedures to ensure only the relevant benefits are disclosed can yield significant cost savings.
If you would like to discuss any of the points raised or would like some help looking at where you could make some cost savings, please contact Ian Hopkinson.