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5 key considerations for tax-efficient employee benefits in a sustainable world

By Jack Curzon | March 6, 2024

Employees are increasingly seeking organisations with core environmental, social and governance values. We explore five key considerations for creating sustainable, tax-efficient employee benefits.
Health and Benefits
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The high ethical expectations of an increasingly discerning labour market mean that employers must offer benefit programmes that have environmental, social and governance (ESG) principles at their core.

Now regarded as a strategic imperative for success, ESG is impacting the shape of employee benefits, on both new offerings, and the repositioning of existing ones.

Cost effectiveness is a key factor for deliverability, and so tax efficiency plays a crucial role in offering a way to maximise the impact of ESG-infused employee benefits

Jack Curzon, at WTW explores five essential considerations for creating tax-efficient employee benefits that embrace ESG principles.

Prioritise holistic wellbeing

ESG-focused benefit programmes should place a strong emphasis on the health and wellbeing of employees. These programmes should encompass all core dimensions of wellbeing, including financial, physical and mental health.

Initiatives such as occupational health support, mindfulness sessions and gym memberships can contribute to a more comprehensive and holistic approach to employee wellbeing.

Tax-efficient structuring, such as salary sacrifice, can help with affordability when implementing these programmes. However, it's crucial to remember that the primary motivation should always be a genuine commitment to enhancing employee wellbeing.

Embrace eco-friendly benefits

A commitment to environmental sustainability can be reflected in benefit offerings that encourage eco-friendly behaviours among employees.

The favourable benefit-in-kind (BIK) tax treatment for electric vehicles, for example, has led to the popularity of salary sacrifice schemes for fleets. With BIK rates as low as 2% until April 2025 and gradually increasing to just 5% by 2027/28, these schemes offer a cost-efficient option for both employees and businesses by significantly reducing income tax and National Insurance Contributions (NICs).

Furthermore, the increasing popularity of cycling due to its health and environmental benefits highlights the importance of supporting eco-conscious commuting. The Cycle to Work Scheme, which utilises salary sacrifice for tax savings, not only encourages sustainable transport, but also provides employers with substantial NICs savings.

Offering incentives for public transport use and incorporating carbon offsetting for business travel are additional ways to demonstrate a commitment to environmental responsibility, while actively engaging employees in green initiatives.

Create a supportive and inclusive environment

Social responsibility in employee benefits revolves around fostering a culture that accommodates diverse needs and champions inclusivity. Flexible work arrangements and mental health support programmes are avenues for achieving this.

To ensure that these benefits are accessible to the entire workforce, employers should explore salary sacrifice and other tax-efficient alternatives. This ensures that employees of all income levels are better placed to take advantage of these offerings.

Governance and compliance

Effective governance of ESG-aligned benefit programmes is paramount. This includes maintaining transparency and ethical standards in programme management.

Employers should remain vigilant to keeping benefit schemes compliant with evolving tax regulations and aligning them with the company's ethical standards and ESG objectives.

Regular audits and reviews can help bolster compliance, reinforcing trust and programme integrity, which is essential for long-term success and reputation management.

Invest in employee engagement and development

Investment in ESG-focused learning and growth is pivotal for instilling ESG values into corporate culture. Offering training and development opportunities, centred on sustainable and ethical business practices, cultivates a culture of continuous learning and personal growth.

The investment not only aligns employees with their organisation’s ESG goals but also contributes to a more sustainable and ethical business environment. It demonstrates a commitment to the long-term development and growth of employees, which can result in a more motivated and engaged workforce.

Gains for the employee, the business and the future

Designing ESG-aligned and tax-efficient employee benefits programmes requires a comprehensive and thoughtful approach.

Although mechanisms, such as salary sacrifice schemes, can enhance tax efficiency, the primary focus should always be on aligning available benefits with broader ESG objectives, encompassing environmental sustainability, social responsibility, good governance, employee engagement, health and wellbeing.

Flexibility and access to ESG-aligned benefits are fundamental to the employee experience and should prompt organisations to explore the evolving benefits marketplace for solutions that enhance the overall experience.

When conceptualising, implementing and operating a benefits scheme, ongoing consultation with tax and legal professionals is strongly advised. This proactive approach enables organisations to navigate the complexities while ensuring that their schemes adhere to all legal, ethical and ESG standards.

Striking the right balance enables organisations to create benefit programmes that meet the needs of both employees and the company, all while contributing to societal and environmental objectives and a sustainable future.

Such an approach not only results in a motivated and engaged workforce, but also positions the company as responsible and forward-thinking, well-equipped to thrive in an increasingly ESG-focused world.

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