 |
| |
|
 New possibilities with salary packaging |
|
 |
|
 |
|
While salary packaging is a familiar concept to most executives, employers wanting to really extend the power of packaging to all their staff face the twin hurdles of managing the complexity and cost of administration.
The challenge is how to manage the complexity of Fringe Benefits Tax,
G.S.T. and Income Tax in a way that supports the organisation's remuneration strategy.
At a policy level, Government of all levels is moving to extend packaging benefits to all employees. Similarly, but less widespread, is the trend for private sector industry agreements to incorporate flexible remuneration structures.
Increasingly, organisations are turning to outsourcing of this vital salary packaging function. Outsourced benefit administration can yield significant benefits to both employers and employees. For the employer, a well-crafted benefit mix can assist in staff retention strategies while putting a focus on the true costs of salary administration and benefit provision. Further, a well-structured compensation strategy can aid in the active management of payroll tax liabilities. For the employee, effective after-tax incomes can rise by around 7 - 10% through well-structured benefit programs, at no cost to the employer.
Improvement comes through utilising FBT-exempt and concessionally taxed benefits as well as active management of how FBT is estimated. Paradoxically, many employers still levy every packaged employee with the full FBT rate, whereas the tax system (by using the contribution method) allows the employer and employee to effectively replace the 48.5% FBT rate with the employee's marginal income tax rate.
Significant indirect benefits can accrue through lower staff turnover. Turnover of staff represents a huge hidden burden on employers. It is not uncommon to see the cost of replacing lost staff add the equivalent of 50% of their first years salary lost through recruitment, induction and lower productivity versus an existing employee.
So what are the types of benefits options for employees on offer?
The four categories are:
- FBT Exempt Benefits that are Work Related
such as Laptop computer; Electronic diary; Computer software; Briefcase and Mobile phone.
- Other FBT Exempt Items
such as Complying employee share plan; Airport lounge membership; Employee Savings plan; $500 exemption.
- Otherwise deductible
such as Professional subscriptions; Financial planning; Income insurance; Complying self-education and Home office equipment.
- Concessional
such as Superannuation; Motor Vehicles and Staff discounts.
In addition to these benefits, Public Benevolent Institutions (such as not-for-profit organisations and hospitals) have additional benefit mixes available. But benefit provision is not enough. For the employer, the complexity of the tax regime means that regular FBT and GST reporting is necessary through the Business Activity Statements and Annual Returns. Careful tracking also means that employers can capture input tax credits generated by the employee benefit use, which are then available for reimbursement to employees.
Outsourcing the administration of a salary packaging scheme would typcially cost around $6.00 per week per employee.
March, 2001
|
|
 |
|
