How to boost team engagement and retention without raising salaries

Every agency owner knows that keeping hold of your best staff is vital. It’s time-consuming and expensive to recruit, and competition is fierce for top talent. 

However, inflation has put pressure on salaries and created the demand for higher wages. If you feel like you’re caught between a rock and a hard place, you’re not alone – many employees are looking for pay rises at the same time that business costs have skyrocketed. 

The good news is that there are plenty of alternative ways you can reward your team without raising salaries across the board. 

In our recent client-exclusive webinar on optimising your tax position, Wow specialists shared tips on how you can provide tax-efficient benefits to employees. We’ve included five ideas below, but Wow clients can catch up with the whole webinar on demand.

 

Trivial benefits

Trivial benefits are the easiest way to give your team a quick boost and make them feel appreciated. The clue is in the name – these are small, “trivial” gifts like cinema vouchers, birthday presents or pizzas for the office on a Friday. 

You don’t have to pay tax on a trivial benefit if it ticks all the following boxes:

• It costs £50 or less (inclusive of VAT)
• It isn’t cash or a voucher that can be converted to cash
• It isn’t written into an employee’s contract
• It isn’t a reward for their performance
  
  

As long as you stick to the above criteria, there’s no limit on the number of trivial benefits you can give to your team. It makes it a no-brainer for business owners looking for a simple way to treat employees without additional tax implications.

For directors, the rule is slightly different. Trivial benefits should remain under the £50 mark but there’s an annual tax year limit of £300 (inclusive of VAT) total. 

Since trivial benefits are exempt from tax, you won’t have to do any reporting. That said, you should still record these benefits on file somewhere, should HMRC ever want to review them and check they’ve been treated correctly.

 

Working from home allowance
The working from home allowance lets remote employees claim £6 per week, or £312 per year. Making a flat claim of this amount should go in with no questions asked from HMRC about how it’s made up; if your employee wants to claim for a specific amount, they will need to provide detailed calculations to back it up.

The amount your employee gets back will depend on their tax band, but a £312 claim by an employee on a higher rate will give them £125 back in their pocket.

It’s simple to do, and an effective way to ensure your employees get a welcome cash boost each year. All they need to do is make an annual declaration to HMRC, which they can do via the Self Assessment tax return or through their Government Gateway online portal.

It’s important to note that your employees can only claim if there’s no choice about where they work, so optional hybrid working won’t apply here. Their contract will need to state that they work from home or they’re remote-first, and you’ll need to make sure there isn’t an available workstation for them in your office.

If remote employees do need to travel into your office for any reason, they may also be able to claim mileage via their tax return, since the office won’t be designated as their normal workplace.

 

Invest in an electric company car
Buying a car might sound like a big-budget alternative to a pay rise, but if you and your team travel a lot, it can be much more tax-efficient to invest in a 100% electric company car than provide substantial raises. 

For example, if you’re thinking about raising an employee’s pay by £500 a month (£6,000 per year) and they’re a higher rate taxpayer, that will be an additional income tax of £2,400. However, if you provide them with an electric company car at £75,000 in value, that’s £600 of income tax. You could save your employees about £1,900 of tax each year, compared to an outright pay rise.

Alternatively, a more affordable option is to lease an electric car. You’ll not only benefit from lower initial and monthly costs, but if the Co2 is below the threshold of 50g/km, you can deduct the monthly cost from your profit and loss account statement. This is the only option in where VAT can be reclaimed, but it is capped at 50%.

Whichever option you choose, electric cars are the most tax-efficient option for both you and the business, even when compared to hybrid cars. And unlike personal cars where you’d have to pay for the insurance, upkeep and tax, a company car is an asset in your accounts so it can all go through the business. 

 

Share option schemes
Amid the cost of living crisis, we’ve seen an increase in business owners putting share option schemes in place as an alternative to large pay rises. 

Share option schemes give employees options to purchase shares at a future date, which you control. The Enterprise Management Incentive (EMI) scheme is particularly popular because it has tax advantage status with HMRC. 

The growth in the value of the shares from the point of grant to exercise to future sale is taxed at more favourable capital gains tax rates (usually 10 or 20%). Without a tax advantage scheme, an employee would be taxed at income tax rates on obtaining shares, which is more likely to be around 40-45%.

Business owners can expect to pay around £10,000 to set up a scheme, which includes accountancy and legal fees. While putting a number of staff into an EMI scheme will be similar to issuing a large pay rise, it should work out cheaper in the long run when you compare the initial output to continued, larger scale salary increases.

 

Employee Ownership Trusts 
An Employee Ownership Trust (EoT) allows your company to become owned by your employees. It’s a great way to not only safeguard the legacy of your business but also reward your team and get them actively engaged in its long-term success.

The most important rule to bear in mind is that all employees have to be included on equal terms. If that sounds feasible, there are some attractive benefits from a tax perspective – as the business owner, you can sell your controlling stake to an employee-owned trust and receive the proceeds completely tax-free.

Setting up a trust is a complex process and will incur professional fees, but the tax benefits and potential boost to employee retention are, unsurprisingly, a hugely attractive prospect for many business owners.

 

Want to find out more?
If you’re a Wow client, you can get more exclusive tips on optimising your tax position in our webinar (it should be in your latest Lead Adviser Briefing email, but if you can’t find it please get in touch). For further support and advice around tax planning, talk to the team here.