Jobs fear as salary sacrifice faces axe

Published on Saturday 14 November 2009 12:09

BUSINESSES will be hit with spiralling staff costs and will have to cut employee numbers if salary sacrifice benefits – such as private medical insurance – are axed in next month's pre-budget report.

Experts fear Chancellor Alistair Darling will follow Ireland's lead on 9 December and introduce legislation in January to block tax-efficient salary sacrifice schemes to raise revenue.

Lee Muter, a director in Ernst & Young's human capital team in Scotland, said a precedent had already being set with Prime Minister Gordon Brown's announcement in September that childcare vouchers, a popular form of salary sacrifice, would be phased out in 2015.

Muter said: "It's very attractive for employers to be able to offer flexible packages to suit individual circumstances. It sets them apart from other employers. The tax exemptions are also a big cost saving for businesses."

Many schemes suit the green agenda, such as bikes for work or bus passes to encourage staff to use public transport. Other schemes involve dental insurance and health cover.

Muter added: "The country is in debt and the government is looking to close that gap by clamping down on tax exemptions. The phasing out of childcare vouchers will be expensive for businesses and hard on low-paid workers."

Employers will have to increase salaries to make up for lost benefits, he warned. Muter said it would cost a company an average of 1,200 a year for each employee on an average salary of less than 35,000.

He said: "Multiply that for 100 employees and it is equivalent to about three or four jobs. This is potentially a big hit for employers at a time when they are trying to recover from recession and keep costs low. They will need to get more productive or reduce job levels."