Cost-cutting bosses are targeting company perks

Beware the real cost of eroding benefits

Thousands of employees could face creeping benefits withdrawals, experts warn, as businesses look for new ways to cut costs. But in losing your benefits, you could be losing far more than you think.

Surviving a recession is all about cost cutting, and employers are saving money by slashing benefits. Making such cuts can often save firms more than the face value of these benefits. But often it costs companies less to provide them than it would cost you to buy them independently, while others come with tax relief attached.

Offering benefits – such as company cars, childcare vouchers, private medical insurance, pension schemes and more – has always been a way for businesses to attract workers. However, these optional extras are beneficial for the company too.

"This is a benefit for the employer," says Charles Cotton, reward adviser for the Chartered Institute of Personnel and Development, "because it alleviates pressures to raise base pay, which would otherwise allow employees to buy the same things on the open market." Offering certain perks can also allow employers to qualify for valuable tax reliefs, helping them to trim costs.

But slashing benefits could see employees losing far more than their face value. "When it comes to taxing benefits, their value is calculated by the extra a company pays to provide them," says Clive Gawthorpe, a tax partner at accountants UHY Hacker Young. But the price the company pays for health insurance, say, is usually far lower than on the open market. "People expect to have health cover in their jobs," Mr Gawthorpe says. "But the cost of paying for it themselves would exceed the value that it will cost the employer because companies can buy in bulk."

However, it's your employee pension that could really cost you money. The value of an employer's contribution to your pension is not just the actual amount they invest for you over time, but also the return the investment accrues. If an employer stops paying contributions you are losing not just the initial investment, but the eventual return as well, a figure that stands to be a lot higher, and you may feel the financial effects for the rest of your life.

One way of making up for the loss of future returns is to opt for salary sacrifice in order to retain benefits. This could mean your employer would continue to contribute to your pension. Employers are likely to look favourably on such a compromise as it affords them tax relief – they do not have to pay National Insurance on what they contribute to your pension. This is also the case for childcare vouchers. But salary sacrifice is not an option for all types of benefits. As Mr Cotton says: "There is a concern for employers if they used types of salary sacrifice other than tax relief benefits such as pensions and childcare, that the salary sacrifice loophole would be closed up."

To find out the true value of what you stand to lose if your benefits are reduced, you can request a total rewards statement from your employer. From this, you will be able to decide their cash value, and the value to yourself, and choose which ones are worth keeping and which you can happily give up.

"It's about how much it's worth to you," says Mr Gawthorpe. "Cutting a benefit that isn't really desired isn't a big deal. It's the balance of making things more tax efficient and making savings for the individual that counts."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
Kieron Richardson plays gay character Ste Hay in Channel 4 soap Hollyoaks
tv

Regular cast member Ste Hay, played by Kieron Richardson, is about to test TV boundaries

Life and Style
tech
Life and Style
techPerils of 'text neck' revealed
News
i100
News
Stonewall CEO Ruth Hunt
peopleStonewall boss says many fear it could ruin their careers
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Carlton Senior Appointments: Director, Private Bank - San Francisco, CA

    $175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...

    Carlton Senior Appointments: San Diego, CA – Tier 1 House - Senior MD FA

    Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...

    Day In a Page

    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines
    Will Smith's children have made waves with a gloriously over-the-top interview, but will their music match their musings?

    What are Jaden and Willow on about?

    Will Smith's children have made waves with a gloriously over-the-top interview, but will their music match their musings?
    Fridge gate: How George Osborne keeping his fridge padlocked shows a frosty side to shared spaces

    Cold war

    How George Osborne keeping his fridge padlocked shows a frosty side to shared spaces
    Stocking fillers: 10 best loo books

    Stocking fillers: 10 best loo books

    From dogs in cars to online etiquette, while away a few minutes in peace with one of these humorous, original and occasionally educational tomes
    Malky Mackay appointed Wigan manager: Three texts keep Scot’s rehabilitation on a knife-edge

    Three texts keep Mackay’s rehabilitation on a knife-edge

    New Wigan manager said all the right things - but until the FA’s verdict is delivered he is still on probation, says Ian Herbert
    Louis van Gaal: the liberal, the enemy and... err, the poet

    Louis van Gaal: the liberal, the enemy and... err, the poet

    ‘O, Louis’ is the plaintive title of a biography about the Dutchman. Ian Herbert looks at what it tells us about the Manchester United manager
    Isis in Iraq: Baghdad hails the retaking of the Baiji oil refinery as the start of the long fightback against the Islamist militants

    Isis takes a big step back

    Baghdad hails the retaking of the Baiji oil refinery as the start of the long fightback against the Islamist militants
    Bill Cosby: America’s beloved TV ‘dad’ or serial rapist?

    Bill Cosby: America’s beloved TV ‘dad’ or serial rapist?

    Ukip silk bow ties, Green Party T-shirts, and 'Iron Baby' romper suits: How to shop politically

    How to shop politically

    Ukip silk bow ties, Green Party T-shirts, and 'Iron Baby' romper suits
    The science of sex: What happens when science meets erotica

    Sex on the brain

    Fetishes, dominatrixes, kinks and erotica. They are subjects that should get the crowds flocking to a new exhibition at the Wellcome Collection