From an Irish HR perspective, the Small Benefit Scheme for rewarding employees tax-free is an opportunity not available in most other countries (hurrah for Ireland's tax law sovereignty!). So how can HR use the scheme to best support the strategic objectives of HR - be it e
mployee engagement, motivation, retention, productivity, performance or company culture?
From providing thousands of tax-free Allgo Rewards Mastercard Gift Cards and tax-free Reward Programmes to hundreds of HR Managers across Ireland, here are our Top 3 Things that HR Managers should know - but maybe don't consider - about using the €500 tax-free reward scheme in Ireland.
1. Rewarding different amounts is common, but there is a but...
Many companies do not not award the same amounts to all employees. The scheme allows for any non-cash benefit to be awarded tax-free UP TO €500 (as long as 4 key criteria are met). However, you don't need to award the same amount to everyone.
Very often, the company first decides the max it will award. €500, or the old limit of €250, are the most popular amounts. Then, many companies discount the max amount for certain employees. For example, employees who joined within the last 6 months may receive a reduced or pro-rata amount. Part-time staff may receive a lower amount. Or contract staff may be awarded a lower amount, or nothing at all.
Two notes of caution about this: Firstly in order to avoid disgruntlement (and yes, even staff receiving rewards for free do complain!), the method for calculating reward amounts needs to be fair and transparent.
Secondly, to avoid an internal administration nightmare, it is often better to batch rewards into a only few bands of different values instead of individual amounts as it makes the internal distribution to staff a lot easier. If individual amounts are required, then it is really important to get the reward provider to reduce the distribution admin as much as possible.
2. It is possible to spread out the benefits all year
Even though normally only one reward per year, and only the 1st reward per year, qualifies for the Small Benefit Scheme, it is actually possible to incorporate the tax break into a year-round employee reward programme.
To do that, a Revenue-approved points programme like Allgo Points, can be used to incentivise employees all year. Employees can earn points for performance or behaviours all year, with the stipulation that they can only spend their points in December, AND that the value of points earned is capped at €500 per year.
Since the tax-free limit was increased from €250 per employee per year to €500 per employee per year in 2015, many companies have begun incorporating the tax-saving element into ongoing employee programmes.
3. Bonuses are allowed (in most cases)
While salary sacrifice cannot be used to pay employees tax-free, paying of company bonuses under the scheme is both allowed and encouraged.
While it works best with annual company bonuses that adhere to the one reward per year rule, some companies with say quarterly bonuses are happy to pay the 1st quarter's bonuses tax-free, and the pay the other quarterly bonuses through payroll (this mostly occurs when quarterly bonuses are in the order of €500 to get the full value from the scheme).
Companies normally pay the first €500 of any annual bonus tax-free on the scheme with multi-retailer gift cards, and then pay any bonus amount in excess of that through payroll. As a matter of procedure, many HR departments give employees an opt-out option, just in case they would prefer to be paid all bonuses through payroll, subject to the normal tax.
One final word - if it is a term of employment that bonuses are guaranteed, then it may form part of a normal salary, and therefore be disqualified from the scheme on salary sacrifice grounds. This is where the company's tax advisers need to be consulted.
Download the Small Benefit Guide 2018
In the latest publication from Allgo, we provide the definitive guide to the Irish Revenue's tax-free reward scheme for Irish employers and employees. Download it for free today by clicking the Download Now button below.