Maximising the €500 benefit-in-kind tax break
Leadership training guru Dale Carnegie once said, "people work for money but go the extra mile for recognition, praise and rewards".
Revenue’s Small Benefit Exemption (SBE) is a perfect opportunity for employers to test that theory with an annual tax-free gift to staff worth up to €500 each year. For an employee on the marginal rate, this gift is effectively worth over double the value and the employer pays no payroll contributions such as PRSI. A win-win.
But if you utilise the SBE, are you maximising what it can do for your business? And are you avoiding the potential pitfalls? And if you’re not using it, why not? It’s just a matter of administrating the scheme correctly.
Using the SBE to give a non-cash gift of up to €500 to employees appears straight-forward, but many companies still misinterpret or fail to use it efficiently. The result is high costs as well as a failure to maximise the benefit for employees.
There are companies of all sizes who, when audited, get a surprise tax bill specifically for failing to use the SBE correctly. In the past three years, companies have been billed anything from hundreds of euro to millions in the most extreme case.
The SBE tax break, when properly administrated, can be an extremely low-cost tool to drive company initiatives.
Some ways it can be used include:
- Employee referrals: A reward to staff which reduces recruitment costs. Generally, referred employees settle in better and are happier.
- Perfect attendance: This isn’t a “showing up” bonus, it’s a way to drive a culture in your company that encourages perfect attendance.
- Milestone awards: Use it as a way of celebrate big and little successes with employees and to focus them on the next initiative
- Encourage employees: Projects such as cost control targets can be incentivised.
- Recognising excellence in the workplace: The achievement of targets can be rewarded.
The SBE is used by most companies in the form of a multi-store gift card given to employees. Corporate gift card purchasing figures indicate that less than 25% of the estimated €1.02bn tax break is used by companies. This means there is c.€766m in this tax break that is not being availed of by corporate Ireland.
How can you help your company?
- Allocate a budget that will be spent on the SBE
- Decide on three things you want to achieve
- Communicate the initiative to staff and set it as a manager KPI
- Talk to a service provider that operates in the area of staff recognition to maximise success and value for money
- Most importantly, manage the process and keep driving it
- Allow managers to do their own version of the awards
- Give other token / gifts during the year without accounting for them
- Use a system that allocates smaller rewards that are immediately accessible to employees during the year. If an employee has access to the rewards during the year, the SBE is used once the first reward is given.
- Waste the opportunity on a card that excludes certain groups of employees
There are companies that specialise in recognition and rewards, who offer solutions to maximise the success of your initiative. These companies will give you advice on the best way to use the SBE and how to ensure your company gets the most out of it. The companies operating in this space are Me2You Gift Cards, An Post, and Globoforce.
So for any employer considering a low-cost way of boosting productivity while rewarding their staff, the SBE is tailor-made. But remember it’s not just what you do, it’s the way that you do it.
This month’s blog was contributed by John Paul L’Estrange, Head of Corporate Sales, Me2You Recognition & Rewards email: firstname.lastname@example.org
The views expressed in the posts and comments of this blog do not necessarily reflect the views of the Institute of Directors in Ireland. They should be understood as the personal opinions of the author. The content of this blog is for information purposes only and the Institute of Directors in Ireland is not responsible for the accuracy of any of the information supplied.