The Small Benefit Scheme (SBS) is a statutory tax relief scheme offered by Irish Revenue that allows employers to provide a tax exempt benefit to Irish employees of up to €500 per year.
From an Irish HR perspective,the Small Benefit Scheme is one of the most important schemes used to recognise and thank staff every year. Here are our Top 3 Things that HR Managers should know - but maybe don't consider - about using this tax-free reward scheme-
1. Rewarding different amounts to different employees is common, but you need to be careful.....
Many companies do not not award the same reward amount to every employees. The scheme allows for any non-cash benefit to be awarded tax-free UP TO €500 (as long as the 4 key criteria are met). However, you don't need to award the same amount to everyone.
Very often, the company first decides what their overall budget for Small Benefit Rewards is going to be. Sometimes, this is as simple as multiplying the number of employees by €500, or the old limit of €250. However, many companies reduce the amount rewarded 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 label and batch the rewards for employees in order to reduce the distribution admin as much as possible
2. It is possible to spread out the benefits all year
Even though the Small Benefit Scheme Rules stipulates that only one reward per year, and only the 1st reward per year, qualifies for the 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 allowed, and is very common.
While it works best with annual company bonuses that adhere to the one reward per year rule, and where the annual bonus is under €500 for every employee, in reality, this is very rarely the case.
Some companies have quarterly bonuses, and so they pay the first quarter's bonuses tax-free through the Scheme, and then pay the subsequent quarterly bonuses through payroll (the quarterly bonuses ideally should be in the region of €500 to get the full value from the scheme).
For bonuses where the bonus amount for some employees exceeds €500, companies normally elect to pay the first €500 of the bonus tax-free on the scheme, 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.
For the most popular types of rewards used for bonuses on the Small Benefit Scheme, check out our blog post here.
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.
Guide to Small Benefit Scheme 2019
Our 2019 Expert Guide to the Irish Revenue’s tax-free employee reward scheme gives you expert info, insights and case studies for getting the most out of the scheme. Download it for free today by clicking the Download Now.