by Ray McKenna, Partner and Head of People Solutions with Lockton Ireland
In a bid to attract and hold onto skilled staff today, employers are increasingly offering workers a broader range of benefits. This could be anything from traditional benefits such as health insurance and company pensions to more modern offerings such as fertility benefits, financial wellbeing supports, employee coaching, and extended types of leave – such as paternity, carer’s and volunteering leave.
The financial value of many of these isn’t always immediately apparent – some benefits put money into worker’s pockets right way while others do so over time and even indirectly. However, additional benefits provided by an employer can be a huge boost to an employee’s finances and so workers should give all due consideration. It’s important for workers to make the right choices when mulling over any on-the-job perks on the table – and to ensure they’re aware of the tax implications of these benefits.
Pension
A company pension is one of the most valuable work perks available to employees, particularly where the employer pays a contribution into the pension on their behalf, which is likely to become compulsory in 2025 (under auto-enrolment). Employer contributions make it much easier for people to save up a reasonable pension.
With some defined contribution work pension schemes, the more a worker pays into their pension, the more their employer will pay – these are known as matching contributions. Workers should make the most of any employer or matching contributions into a company pension scheme.
The tax efficiency of pension savings is another reason that pensions are high in the value stakes of employee benefits. Workers qualify for 40pc tax relief on their pension contributions if they’re a higher-rate taxpayer; 20pc if they’re a standard rate taxpayer. So, if for example, a worker is paying €600 a month into their pension and they’re a higher rate taxpayer, this €600 contribution would only cost them €360 once tax relief has been accounted for.
Death in service
Some pension arrangements provide an employment benefit that pays out a lump sum to an employee’s nominated beneficiaries if they pass away while they are working for their employer. Known as death-in-service benefit, this could be a hugely valuable benefit as it can help a worker’s dependents cope financially if the worker passes away before retirement. The cause of death doesn’t have to be work-related – workers simply need to be on the company’s payroll at the time of death. Although these lump sums are typically paid tax-free from the pension plan, they may be taxable in the hands of recipients, depending on marital status.
Health insurance
Health insurance is a valuable work perk which should be considered by all employees.
The cost of a good private health insurance plan could easily be about €1,500 or more a year for an individual, and €3,600 a year for a family of four or more. Furthermore, as rarely a year goes by without a price hike in private health insurance, this cover is becoming more expensive – so if an employer is paying this for a worker, the worker is fortunate not to feel the brunt of this inflationary pressure. It’s also important to note that workers may be able to avail of exclusive concessions through an employer scheme – such as corporate discounts and a waiver of all waiting periods. The latter could mean that a worker’s private health cover commences immediately – even for pre-existing conditions, which are normally excluded from cover for a period of five years.
Family benefits
For parents with young children or other caring responsibilities, family-friendly policies in work could be the difference between being able to continue in a job or not.
Furthermore, while the financial value of flexible working arrangements may not seem immediately obvious, such arrangements could save working parents a lot of money on childcare and commuting costs. Often dubbed the ‘second mortgage’, full-time creches fees can be up to €1,000 a month or more in some locations. Depending on how far a worker lives from the office, commuting costs can also be substantial. So having the flexibility to work from home certain days a week could reduce the childcare requirements which parents would otherwise face if based in an office full-time. Flexible work arrangements can also help remove some of the hardship and stress that comes with trying to juggle a busy home and work life.
Family-forming benefits – which include fertility preservation, assisted reproduction, adoption and surrogacy – are an increasingly common element of an employer’s suite of benefits. The costs of these can often be prohibitive, with one cycle of IVF costing around €5,000 in Ireland for example. A recent IBEC survey showed that 11pc of Irish companies had specific fertility support programmes in place, and this number is growing.
Flexible working arrangements, progressive family-friendly policies, access to female/men’s health services and broader wellbeing plans can all add real value to all employees’ lives and pockets. It’s important that workers don’t underestimate the financial value of a job that offers them the flexibility to juggle family and work life and ultimately limit their time out of the workforce. Time taken out of the workforce to look after children can negatively impact a parent’s pension, career and pay prospects.
Other work perks
Depending on the employer, there are a range of other work benefits which could be on the table in work, such as free or subsidised gym membership, ‘welcome bonuses’, tax-free vouchers, company cars, share option schemes, and free or subsidised food, amongst others.
It’s important that workers carefully weigh up the value and the suitability of these benefits to their individual needs before taking them up, particularly if they are in a situation whereby they must choose one over the other.
Digital spending cards are a novel and tax-efficient way of utilising the small benefit allowance, whereby employers can provide up to €1,000 to each employee per year completely tax-free (subject to certain Revenue requirements being met). These spending cards can be used exactly like a debit card which offers great flexibility to employees and are growing in popularity over gift vouchers.
Tax considerations
It’s important for employees to understand that there is often a tax cost with employment “extras” and to know how acceptance of such benefits could impact their take-home pay.
Employee benefits are classified as benefit-in-kind (BIK) for tax purposes – that is, any non-cash benefit of monetary value that is provided for an employee. As these benefits have a monetary value, they must usually be treated as taxable income and income tax, PRSI and the Universal Social Charge (USC) must typically be paid on the value of the benefit – if it’s a taxable benefit.
However, some extras are not taxable – such as free or subsidised canteen meals (where they are available to all staff), car parking, employer pension contributions and annual gift vouchers up to the value of €1,000.
Workers should always find out if what is on offer from their employer will trigger a tax bill for them. If it does, they may wish to decline the benefit, particularly if it’s not something which they particularly value or intend to use that much.
Tax bill or none, it is important that workers ascertain what is important for them when reviewing the various work perks on offer. There will likely be at least one or two (like pensions and health insurance) which they probably can’t afford to pass up, and more emergent ones – like family-forming benefits or extended leave policies – to keep an eye out for.
