Aon Employee Benefits, the UK health and benefits business of Aon plc (NYSE: AON), says employers need to communicate carefully the potential for changes to salary sacrifice legislation for all benefit annual enrolments that take place between now and December. It is believed that the Chancellor will announce changes to the treatment of certain salary sacrifice benefits during the Government’s Autumn Statement.
Aon says there is an immediate challenge for employers and employees. With the HMRC salary sacrifice proposals in consultation, employers are unclear how to communicate the potential tax and National Insurance Contribution (NIC) implications of benefit choices to employees. Employees could make their selections without knowing full financial implications.
Martha How, reward partner for Aon Employee Benefits, said: “This timing challenge is likely to impact the majority of employers. For Aon alone, this enrolment period (between September and December 2016) represents 60% of our flexible benefit clients. Employers have a real concern for employees who will be making benefit selections when the tax and NIC situation is still unclear.
How do employers communicate to staff that they can make selections as normal, but what they choose may or may not provide a tax or NIC benefit? This transition period is quite messy for employers and employees.”
Aon urges employers to consider all flexible benefit enrolment communication processes carefully. This includes direct benefit communications as well as web and intranet communications. All annual enrolment communications will need to outline the potential changes, advising employees that details are unclear until new legislation is set out.
It is not envisaged that employers will close flexible benefits plans on the back of the salary sacrifice changes. The business case for flexible benefits seldom rests on the NIC savings on items like cars and health screenings alone, and the savings will still be available on items such as pensions, bikes, childcare vouchers and holiday buying. Benefits likely to be impacted include health screenings, car parking, mobile phones and computers, additional life and income protection insurance. There may also be changes to company car taxation in the pipeline.
Most employers say that a flexible benefits plan remains the premier benefit delivery mechanism because it acknowledges employee diversity, provides choice, leverages corporate discounts for employees, supports engagement and promotes health opportunities. The value-add for employees of benefits provided through flex remains through corporate purchasing rates and the sheer convenience of obtaining benefits in this way.
It is, however, thought that business cases for new plans will come under increased scrutiny, especially with the closure of childcare vouchers to new entrants after 2017, as this currently provides significant savings for employers.
Martha How added: “The taxation treatment of salary sacrifice benefits may be undergoing its most radical change for over 10 years and employers will need to reflect these changes in their benefit designs moving forward.”