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
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmReview: A week late, Secret Cinema arrives as interactive screening goes Back to the Future
Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Travel
travel
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
artCultural relations between Sydney and Melbourne soured by row over milk crate art instillation
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
filmBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
News
i100
News
Kenny Ireland, pictured in 2010.
peopleBenidorm, actor was just 68
Arts and Entertainment
Preparations begin for Edinburgh Festival 2014
Edinburgh festivalAll the best shows to see at Edinburgh this year
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Arts and Entertainment
arts + ents
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

    Financial Analyst - Forecasting - Yorkshire

    £300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

    Business Architect - Bristol - £500 per day

    £500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

    Regulatory Reporting-MI-Bank-Cardiff-£300/day

    £200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In grandfather's footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

    Martha Stewart has flying robot

    The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

    The dining car makes a comeback

    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
    Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

    Gallery rage

    How are institutions tackling the discomfort of overcrowding this summer?
    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

    Eye on the prize

    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
    Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

    Women's rugby

    Tamara Taylor adds fuel to the ire in quest to land World Cup
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices