Small Benefit Scheme increase could generate €1bn tax break

Analysis by Irish employee reward and recognition company, Allgo Rewards, has shown doubling the Small Benefit Scheme could generate a tax break of over €1 billion to help workers battling the effects the rising cost of living.

Under the current scheme employers can give their staff a maximum one-off payment of €500 per annum in gift cards without incurring any taxation, providing a benefit of around over €600 for a top rate taxpayer and over €300 for a standard rate payer.

An increase to scheme has been suggested by the Tánaiste as a possibility for inclusion in this year’s Budget and, should it be actioned, would see Ireland lead the EU in the extent of its tax break system for employee rewards.

The Scheme still remains underutilised by employers around the country. Research conducted by Allgo as part of their annual HR trends report found that almost 40% of employers do not use the scheme. Were the ceiling lifted to €1,000 in this year’s Budget, it would represent a potential tax break to employers and employees of over €1 billion

Allgo Rewards, based in The Digital Hub in Dublin’s Liberties, operate an employee reward card under the Small Benefit Scheme as well as a SaaS application called Allgo Recognition. Allgo Recognition provides companies of all sizes the ability to positively engage with employees through recognising and rewarding performance and achievements.

Pictured is Gary Purcell, CEO and Founder, Allgo Rewards.
Pictured is Gary Purcell, CEO and Founder, Allgo Rewards, Picture: Orla Murray/Coalesce

According to Allgo’s latest HR Trends Report for 2022, employee engagement is the number one priority for HR leaders throughout 2022. However, according Allgo CEO Gary Purcell, this is at odds with a lower ranking when it comes to employee compensation and benefits.

“Employee engagement should be a key priority for companies seeking to motivate staff after all the challenges of the pandemic lockdown restrictions and against a backdrop of a highly competitive labour market. Our research shows, however, that HR leaders are placing employee compensation and benefits in 9th place out of 13 categories for HR projects in 2022. While compensation and benefits are not the sole driver of engagement for employees, it is hugely important and there is a disconnect here when it comes to effectively engaging with employees.”

With retention of employees ranked as the number one challenge HR leaders are facing in 2022, putting in place an effective program which balances employee engagement with compensation and benefits could be an approach which pays dividend in the long-run. “There isn’t a magic bullet”, says Purcell, “but with only 62% of Irish businesses using the Small Benefit Scheme, there is a clear opportunity for Irish employers to ensure that rewarding employees is part of a bigger picture when it comes to company performance. I would also see this potential increase as a real inflation-buster, putting some extra money back into workers’ pockets and the economy when prices are visibly rising.”

A possible increase in the Small Benefit Scheme presents a huge opportunity to look at recognising employees over a full year, as opposed to rewarding employees in isolation towards the end of the year, Purcell adds.

“The traditional application of the Small Benefit Scheme is a gift card or present as we get towards year end – largely because it is part of the Scheme’s rule that it is a once-off gift. Should it be increased, employers have the opportunity to look using the Scheme over a year-long period to constantly recognise employees – adding to the bonus pot at specific milestones or achievements throughout the year. Using a points-based system, employers could recognise employees throughout the year with points converted to into a single gift card at year end to comply with the rules of the Small Benefit Scheme. This effectively engages employees over a longer period of time, with the positive outcome of improved performance.”

There is a wealth of evidence which supports the importance of engaged employees. Research from advisory firm Gallup has found that companies who have higher employee engagement have 43% lower staff turnover, while those companies can expect to see 23% higher profits compared to companies with lower employee engagement.

Allgo’s 2022 HR Trends Report is available here.

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