Employee benefits you may be entitled to
As the old adage goes, there's no such thing as a free lunch. But with disposable incomes squeezed ever tighter - recent figures from the Office for National Statistics show that the average income has fallen by £1,200 since 2007/8 in real terms - your employer could potentially be a huge source of untapped benefits.
The first and most important benefit to sound out is a workplace pension. Many employers will offer workers a pension scheme to which you contribute monthly, and will often match your contributions. Research at the start of the year from Fidelity Worldwide Investment suggests that an employee could benefit to the tune of £10,000 in extra employer contributions over a decade if they start investing in a pension. Added to this, you receive tax relief on the contributions and it comes out of your gross income.
If your employer doesn't currently offer a scheme, the government-backed National Employment Savings Trust (Nest) came into effect in October 2012, and will eventually see all employees enrolled into a workplace pension scheme automatically. It will also set minimum contribution levels for employees. But it's only being rolled out to big firms at first, with smaller companies to be included in the scheme by 2017.
Additionally, employees can give up more of their wage each month via salary sacrifice - explained in more detail later on - in return for extra employer contributions to a pension fund, in order for both you and your boss to sidestep national insurance (NI).
Do you have a workplace pension, if yes, who is your provider? Let us know
Share save schemes
Investing in your company's share save scheme is a great way to save money. There are two main types of scheme - the save as you earn (SAYE) and the share incentive plan (SIP), and both allow employees to buy shares at a discount to the rest of the market.
SAYE schemes are the more popular of the two, says John Collinson, head of employee share ownership at membership body ifs ProShare, with around 85% of companies in the FTSE 100 offering them compared to 75% for SIP schemes.
With the SAYE scheme, each month you can save between £5 and £250 into an account, ringfenced from your company so it also comes under the remit of the Financial Services Compensation Scheme should the firm default.
The share price is set at the day you start investing into the scheme, plus a 20% discount. Then, at the end of either three or five years - depending on which timeframe you choose - it can either be invested into the company's shares or returned to you if the share price has fallen.
The SIP scheme works slightly differently. Rather than waiting until the end of the three or five-year period to invest, the SIP is a share purchase plan, so shares are bought each month at the current market value. Up to £125 can be invested each month, and this is used to buy 'partnership' shares in the company. The money invested comes out of your salary before tax is deducted, so this is attractive for higher-rate taxpayers. "Employees feel more a part of the organisation as they are sharing in its success, and employers get a more motivated workforce," adds Collinson.
One of the most common free-of-charge workplace benefits is typically life insurance and income protection. An employer would usually provide life cover of between three to four times an employee's salary, alongside income protection, so that the salary is still paid if the employee is forced to take long periods off work.
Bear in mind that this benefit only applies while you are with your employer, and might not be sufficient for your needs, so it's unwise to rely on this alone.
Private medical insurance - and the discounted gym membership that often comes with it - is also a popular workplace benefit. This can be a great perk, but even if your employer pays the bill it isn't entirely free as it will be taxed as a benefit in kind. This means you pay income tax on the cost of the premium.
In addition, there may be an excess payable, so the private medical insurance is usually only worth using if you need a course of medical treatment or an expensive one-off operation rather than something less expensive. You may also be able to buy additional policies such as critical illness at discounted rates.
Other benefits include salary sacrifice benefits. These involve employees swapping a proportion of their salary in return for a non-cash benefit, usually exempt from tax or NI. Employers often save money too, as they don't pay the NI contributions usually payable on your salary, and could even pass on these savings to you.
If you have children, childcare vouchers are the first salary sacrifice benefit to look into, particularly because more than one million families have suffered some hit to their child benefit since the beginning of the year. Childcare vouchers - which can be used to pay for after-school clubs, nannies, nurseries and childminders - are bought from gross income, so they are tax-efficient too. As an example, families on basic-rate tax can save up to £933 a year if one parent buys them, or £1,866 if they both do, according to voucher provider kiddivouchers.com.
There are other practical benefits available from the workplace that could shave money off your commuting costs. If you live close enough to work to commute by bike, then take advantage of the government-backed Cycle to Work scheme. Introduced in 1999, the scheme allows employers to loan the cost of a bike and cycle equipment as a tax-free benefit. In the same vein, many employers will offer a season ticket loan - a tax-free loan to buy a cheaper annual travel pass, which employees then pay back by sacrificing a proportion of their salary each month.
However, while tax-efficient, any salary sacrifice benefits could have a knock-on effect on other benefits or allowances. First, you will earn less each month, and this could affect any scheme that takes your salary into account, such as a mortgage application. It could also affect the amount of life cover you are entitled to from your employer, as well as the amount of maternity pay and statutory sick pay you are entitled to receive.
That said, some employers will use a 'reference salary'. This means that if you use lots of salary sacrifice benefits, the employer will use a notional salary before any deductions - to give to mortgage companies, for example.
There are other ways your employer could help you. "Even where an employer doesn't offer free benefits, there can still be significant advantages in using it to purchase certain goods or services rather than buying them directly yourself," says Patrick Connolly, certified financial planner at Chase de Vere. "Your employer can take advantage of their size and scale to negotiate discounts."
Lastly, it's always worth asking if there are any training courses available, which will be invaluable for your CV. So you might be able to get something for nothing, but it's also about deciding whether the benefits are right for you before you opt in.
Private medical insurance
PMI allows you to skip the NHS waiting list and arrange treatment at a time you choose. With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the higher your premium will be.
A tax-efficient way of receiving staff benefits, where an employee agrees to forego a proportion of their salary for an equivalent contribution into their pension scheme or in exchange for company car, gym membership, childcare vouchers or private medical insurance. A salary sacrifice scheme is a matter of employment law, not tax law, and is often entered by an employee who is about to move into the higher 40% tax bracket.
Save as you earn
A tax-efficient cash saving scheme that lets employees save towards buying shares in the company they work for at a discounted price. At the end of a specified term, participating employees have the option to buy shares in the company or take the savings in cash. The share option works like a warrant, with a special share price set (known as the option price). If the company’s shares have increased in value when the term is finished, employees can buy the shares at the option price. If the shares are worth less than the option price, the employee simply takes the cash.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
A special government scheme operated through employers that allows you to pay for childcare from your PRE-tax salary. The vouchers cover childcare up to 1 September after your child’s 15th birthday (16th if they are disabled) and can be used at any registered and regulated nursery, playgroup and for nannies, childminders or au pairs.