Easing ‘in-work poverty’

The least surprising thing about 2023 so far is that the UK economy is facing some pretty hefty challenges. Inflation, mortgage rate rises and the rise in wholesale energy prices have left some people in a very precarious financial situation through no fault of their own. The knock-on effect of this cost-of-living crisis for UK citizens has resulted in even more employees who are finding themselves in “in-work poverty”.

So, what can payroll professionals do to ease the pain, especially when employers are also facing additional costs and their profit margins are being eaten away?

What happens if your employee wants to take a second job?

Is your employee contractually prevented from taking a second job? What about if they want to work in the evenings but are then coming into work tired and are not performing? Do you even know whether any of your employees have a second job? All these issues need to be considered alongside the employment law implications.

When cash is not necessarily king

The knee-jerk reaction of many might be to offer employees a one-off cash payment to ease people’s suffering in the cost-of-living crisis. OK – it’s a great thought – but here are some things to think about before jumping off that particular cliff:

• Employees who are on Universal Credit might not thank you if their UC is withdrawn of significantly reduced due to a “bonus” payment being reported on the RTI return (FPS). Think about whether it is possible to stagger a series of smaller payments instead.
• The longer the crisis continues, the less employees are likely to feel rewarded by such a move – people have short memories and when the money is gone, it’s gone. 
• Consider whether other incentives to create an enduring feeling of security of employment might be better in the longer term.
• Cost-of-living payments are not generally pensionable nor do they increase employee annual salary levels. Expectations must be clearly met here so that employees are not anticipating a pay increase or a greater pension contribution.
• Liaise with HR to see whether there is any awareness of employees suffering acute financial hardship or mental ill health because of the cost-of-living crisis. It may be that a campaign can be run to offer one-to-one confidential counselling sessions and specific assistance brought in for those in most need, such as debt counselling. This generate more loyalty amongst employees.
•  Carry out a survey to find out what things employees would value most in their reward package other than salary. Work out whether the reward offering needs to be changed to facilitate access to these popular items, and make sure employees are constantly reminded of what is on offer.

Salary increase

If salary increases across the board are viable and affordable, then it is worth considering what the right level of pay award might be to ensure staff find the award attractive and it will retain them in post. Some businesses have used their funds to offer a lower increase (or no increase) to senior employees than junior employees so that those on lower incomes benefit more from any pay increase.

It’s worth highlighting that any pay increase should be communicated as effectively as possible so that employees understand the overall cost to the employer of the measure, including employer NICs, pension contributions and the effect on other reward elements.

Benefits in kind

Employers could consider some or all of the following: 

•  Giving gift vouchers under the trivial benefits rules of up to £50. This can be done on numerous occasions, not just once a year.
• For those employers who have canteens and food outlets, free and can be offered – and if there is an identifiable marginal (additional) cost to the employer of doing this, it is only the marginal cost which is taxable as a benefit in kind. HMRC has set out guidance on the marginal cost principle. This rule applies to the provision of any in-house benefit.
• Employers can (subject of course to their own financial position and having done some eligibility checks on the employees) loan employees up to £10,000 and set up a repayment plan through payroll with no tax consequences, subject to the HMRC rules being met. Loans can be used for specific things such as travelling from home to work, or generally just to help the individual out of a sticky spot.
• Other popular benefits in kind are gym memberships, which removes the burden of paying a gross monthly fee and where the benefit in kind is taxed on the employee through their tax code instead. Anything which improves health and wellbeing is always a good idea.

If employees are suffering due to increased childcare costs, consider whether any alternatives are available such as in-house creches and help such as tax-free childcare.

Employer-funded training courses which relate to the role, or funding apprenticeship schemes may also be of use to employees and help them develop different skills and broaden horizons – which also helps the employer to “grow their own” talent.

A good source of information when employers and payroll professionals might be looking for inspiration or trying to find out what other employers have done is to the CIPD’s Reward Management Survey.