You may well ask, what has the famous vegan sausage roll got to do with the cost of living crisis?
Well, due to the success of the vegan sausage roll, a few years ago Greggs announced a £300 bonus for all staff. The real headlines though were caused when some employees on universal credit reportedly got to keep just £75 of the £300 bonus.
The cost of living crisis has seen suggestions (sausage) roll in (sorry) as to how employees can be supported. But the ingredients of the support have to be considered to avoid a genuine desire to help employees from leaving an unwanted after-taste.
How does Universal Credit “UC” work?
- Entitlement is based on personal circumstances, capital, other income, and crucially net pay in a monthly period
- For universal credit purposes, there can be a 55% withdrawal rate on net pay
Another important ingredient that impacts the net result is income tax and NIC.
Some options available to Employers
- Pay rise, overtime or additional hours
- Simple and has an immediate effectIncreased tax, NIC and pension
- Reduction in universal credit
- A one-off bonus
- All the above factors; and
- Could result in a nil universal credit award and closed down claim, requiring another claim to cover the next assessment period
- Changing from monthly to weekly pay
- Helps with employees cash flow
- For UC, some assessment periods will be 4 weeks and some 5 weeks, so ther UC award will fluctuate
- Salary advance
- Can help with short term debt issues
- Causes UC fluctuation and possible close down of claims
An improved menu of Benefits
- Benefits in kind that are not taxable
- Tax free benefits have no impact on tax, NIC, pension contributions or UC awardsLow or interest free loans that do not exceed £10,000 can be advanced for debt consolidation, season ticket loans etc
- Free/subsidised meals through a staff canteen (and others)
- Benefits in kind that are taxable that do not impact UC
- There are other benefits in kind whilst taxable, will not impact a UC award, for example car benefits.
- Salary Sacrifice
- For example to fund pension contributionsSaves employee NIC Reduction in pay can increase their UC award
- Be wary of employees at or near the minimum wage as they cannot participate
- What’s the perfect recipe?
- No one size fits all
- Individual employees and employers needs will be different
- For expert advice, please contact the Tax team for a chat, maybe over a sausage roll or coffee.