Incentivising is key in any sales environment where Sales Managers want to ensure they retain their top talent. Ken Craig, partner at Rawlinsons accountancy firm explains how to reward staff while side stepping the tax man.
Nothing will replace a good pay scheme in terms of staff motivation, retention and attraction. Performance related bonuses which top up the pay packets of those sales staff shoring up your bottom line also have a valuable part to play.
However, cash rewards, whether they are commission payments, pro-rata related bonuses or an annual Christmas shopping voucher attract income tax. And that depletes the real value to the employee.
While HMRC isn’t known for its generosity, there is the opportunity to demonstrate yours to your sales force by taking advantage of legitimate tax concessions. Not surprisingly none of the tax free schemes are going to make your sales staff rich, but they may just help give you the edge over your competitors and demonstrate your commitment to your workforce.
The schemes likely to prove the most beneficial for you and your business are those which engage all staff, giving everyone the opportunity to earn a reward. An organised suggestion scheme works on two levels. Your company gets an injection of new ideas and everyone within the business can take part and potentially be rewarded.
To fall into the tax free bracket, rewards must be available through an ‘official’ suggestion scheme. The easiest way to tackle this is with clearly set out objectives – increasing sales, changing the organisational structure or encouraging team work for instance and a standard way of employees making suggestions ie through a suggestion box.
Under such a scheme, staff can net tax free rewards up to a maximum of around £5,000. To meet the criteria the actual figure should be based on a set percentage of the expected financial benefit of the suggestion to the business, so 10 per cent of the invoiced work for instance.
Encouragement awards are an ideal way to reward more junior members of staff. Cash payments are allowed but only up to the value of £25. Staff can party tax free – whether it be a Christmas celebration, summer barbecue or awards night. The bill per person must not exceed £150 though – and that must include such extras as taxis and overnight stays if the firm picks up the tab for those too.
Promotional gifts can be given to staff without the tax man being informed – although their value to each individual must not exceed £50 a year. You may wish to employ your discretion before dishing out the left over giveaways which have been sitting in the back cupboard since your last exhibition – promotional gifts are those which carry advertising and it may be that some staff aren’t entirely comfortable with receiving rewards which deliver the corporate message!
Sometimes it is individuals who deserve a personal reward rather than a team or group offer. While the days of the ‘golden handshake’ seem rather archaic in many sectors, for those who do notch up at least 20 years service there is the opportunity to reward their loyalty with a gift. Of course HMRC has put a value ceiling on the cost of that gift - £50 for each year of service. That does mean though that you can spend up to £1,000 on a special something for an employee celebrating a 20th anniversary.
Do bear in mind when spending that amount of money the recipient’s taste and lifestyle. The traditional gold watch may be well received by some, while others may prefer something more practical. If your aim is to say thank you, reward dedication and motivate the recipient for the next two decades the gift needs to show that you know your staff as individuals.
Celebratory gifts are also exempt from tax. In the strictest sense, all extras which employees receive, over and above their salaries and expenses, are subject to tax. However, HMRC does differentiate between gifts and benefits. Gifts might include flowers on the birth of a child, a bottle of wine to mark a birthday or – they do get a special exemption – a turkey at Christmas.
This level of reward probably won’t help you hang on to staff who are hankering after more cash, shorter hours or ‘a change’ - nothing is a substitute for a good pay scheme and working conditions.
Employee benefits shouldn’t be underestimated though, they can form an attractive element of an employment package – and prove advantageous to you as an employer.
Those little extras throughout the year can help foster goodwill among employees. They help with the ‘feel good factor’ in a workplace and are the kind of things staff mention to others who may be prospective employees of yours. They also help staff buy in to the company – seeing their suggestion implemented gives them a stake which increases motivation and morale.
And the good thing is – HMRC can’t tax any of that!
Rawlinsons is a firm of Chartered Accountants, Business and Tax Advisers providing a complete range of accounting, business, taxation and specialist services to more than 3,000 clients.
for more information.