Most people like to feel rewarded for a job well done.
Whether it’s a simple thank-you or an end-of-year bonus, there’s plenty of evidence for the benefits of rewarding employees for their hard work.
In fact, the Reward and Employee Benefits Association’s poll of 2,006 workers revealed that 82% felt motivated after receiving some form of recognition.
As an employer, there are certain tax obligations to take into account when giving cash or non-cash rewards.
After a successful year, you might want to give your employees a bonus.
This kind of reward can be a strong motivator, as it draws a direct connection between the company’s performance and that of its employees.
It’s also an increasingly popular choice – the latest figures from the Office for National Statistics show that a record £46.4 billion was paid in bonuses in 2016/17.
Cash bonuses are treated as earnings, so you’ll need to deduct income tax and class 1 national insurance contributions (NICs) through payroll.
Rewards other than cash can be just as effective at making employees feel valued for their work, and often carry much lower costs for the employer.
There are different rules for how each kind of non-cash bonus is taxed.
Private medical insurance
According to HMRC, private medical and dental insurance was the most widely received benefit in 2014/15.
If you’re arranging and paying for the insurance directly, you’ll need to pay class 1A NICs at 13.8% on the taxable value.
The following medical treatments are exempt from tax:
- 1 medical check per tax year
- Eye tests, glasses or contact lenses if the employee uses a monitor or screen at work
- Medical treatment outside the UK, for employees working overseas
- Treatment or insurance that covers work-related injuries or diseases only
- Medical treatment up to £500 as part of a return to work plan.
Workplace nurseries are exempt from tax, but they must meet certain registrations and approvals, and be available to all your employees.
You can also provide childcare vouchers tax-free, but they must be within certain limits.
For employees who joined your childcare scheme before 6 April 2011, the limit is £55 per week or £243 per month.
Those who joined on or after this date will have different limits, based on their rate of income tax.
By March 2018, more employees will be able to make use of HMRC’s tax-free childcare scheme, as it will open for children over 6 years old.
You cannot provide childcare vouchers to employees using this scheme.
Company cars are taxed according to their list price, and the amount of tax depends on the emissions level.
Cars with high emissions are taxed more heavily than cars with low emissions, so it makes sense to choose a cheaper, low-emission model.
The charge is capped at 37% of the list price, and you’ll pay class 1A NICs on the amount charged to tax.
Other rewards can be provided tax-free, within certain conditions, including:
- Pension contributions are tax-free as long as your total contributions don’t exceed the employee’s annual allowance
- Parking spaces located at or near the workplace
- A bicycle and safety gear can be made available if the main use is traveling to work, but the employer must retain ownership
- 1 mobile phone can be provided, and the employer must retain ownership contract with the telecoms provider
- Meals and refreshments must be available to all employees in staff canteen.