Finance Bill offers opportunities to reward employees

The publication of the second Irish Finance Bill on 20th November generally made bad news for employers and employees alike. Much of the focus has been on the introduction of the income levy and some pundits estimate that increases in taxation will amount to approximately 2,500 Euro for the average family next year. But as we approach the time for annual pay reviews, what last-ditch efforts can employers make to sweeten the bad news to employees?

The Bill brings in the various measures announced in the Budget, the principle change being the introduction of an income levy. For lower-paid workers it may be appropriate to lower gross income so that it falls below the limit of €18,304, thus avoiding the one per cent levy altogether. The drop in income might be made up by using some of the processes below.

Is now the time to buy your employee a new car or van? Existing fleet vehicles will maintain the current method of calculating the assessable benefit in kind which is based on a percentage of the original market value of the car, with a reduction in the percentage assessable where the employee has incurred high business mileage in the tax year. But the BIK rules are changing so that new cars with lower CO2 emissions will be those with lower Benefit in Kind payments. In the case of one sales representative, for example, her employer is thinking of replacing a three year old, 2 litre, petrol-engined car (with an original market value of 25,000 Euro) with a new, 1.4 litre, diesel-engined car that has the same power and performance and an original market value of only 20,000 Euro. The company is availing of the competitive prices being offered by car retailers (lower original market value); lower fuel, insurance, motor tax and NCT costs; and contributing positively to the environment. It is also rewarding the employee with a new car, reducing the overall cost of BIK payments they have to make at the same time.

That same employer is located in Dublin city centre where it is affected by the introduction of a Benefit In Kind of €200 for car parking (or €100 in certain cases of shared car parking spaces) in the main urban areas. One way the company is thinking of offsetting this cost to employees is to arrange a car-sharing scheme so that the 50 car parking spaces provided become shared. Under the Bill shift work employees starting or finishing work after 9pm or before 7am will have the part of the year during which they are on shift work disregarded for the purposes of the levy, so the employer is also looking, as part of a move to promote more flexible working, at requesting more employees to do shift work and night-time working.

The Bill confirms the introduction of the new scheme for the provision of bicycles and safety equipment up to a maximum cost of €1,000 (in a five year period) by employers. The exemption applies to expenses incurred by an employer on or after 1 January 2009 where employees agree to use the bicycle to cycle to and from work and between work places. Employers can use this to reward employees in lieu of salary.

A Salary Sacrifice scheme for employees who purchase annual commuter tickets for public transport is already in existence and this might encourage some employees to leave the car at home and take the train, bus or tram instead. Salary sacrifice arrangements are where the employee agrees to forego part of their salary to cover the costs associated with the purchase of the annual ticket. With the new Bill, bicycle/safety equipment may also be purchased using a salary sacrifice scheme. This scheme is particularly useful for those employees already cycling to work and to support the green environment.

There are increases in the mortgage interest relief for first time buyers, yet for many young employees, the main problem is obtaining mortgages and loans in the first place. Is your business in a position to offer employees better guarantees to help them persuade mortgage lenders to give them a mortgage? In one case we are aware of an employee had been refused mortgage approval because their partner was on an on-going, seasonal contract. The couple asked the employer to change this to a fulltime contract in exchange for a small drop in pay. The fixed contract enabled the couple to obtain mortgage approval.

In another case, an employer acted as guarantor for a credit union loan to enable an employee purchase a motorbike to get to and from work.

For more information on coaching training in how to carry out annual reviews and pay reviews call us on 01-296-1578 or email admin@peoplematters.ie.