Benevolent fund may help staff in cost-of-living crisis

Workers are increasingly reaching out to their employers for support in the face of the ongoing cost of living crisis. People Management reports on new research showing that 68% of HR professionals have noticed a rise in requests for financial support or education in the past year. On average, a fifth of their workforce has actively approached HR seeking financial wellbeing support. The survey by Pluxee UK questioned more than 2,000 employees and 500 HR professionals. 

In addition, separate research by Reward Gateway found that employees were not satisfied with the level of support businesses are offering. Three in five, 62%, said their employers should do more to offset inflationary pressures and the rising cost of living.

So what forms of financial wellbeing support are employees asking for? Pluxee’s research found that of those who do not currently receive financial support, 65% said employee saving schemes would be the most helpful measure, followed by access to money management tools (58%) and financial education or advice (57%). 

An option that isn’t mentioned in the article but which we can highlight in this programme is the employee hardship fund, or benevolent fund. These are schemes designed to help specific categories of beneficiaries who are facing increased financial hardship including employees, former employees, pensioners and their families and dependants. It’s not a new idea - there are around 3,000 benevolent funds currently operating in the UK of which the vast majority are charities. However, if you are going to go down this route be aware there are lots of issues to consider - employment law, consumer credit and, of course, tax. To explain, on the line, Chris Thomas: 

Chris Thomas: “So I suppose the first question is what form would, or should, a benevolent or hardship fund take? There are a number of options there. So, on a very simple level, it could just involve making grants on an ad hoc basis. You might want a more formalised scheme, perhaps with some sort of criteria under which employees can apply. You might want to think about loans rather than simple outright grants. If you're looking at something that's perhaps a bit of a longer term proposition, rather than just a sort of a short term response to the pandemic, you could consider setting up a charity which has the benefit of providing benefits more tax efficiently than the other routes do and is particularly suitable, I guess, if this is something you can you want to be doing as a longer term objective You could even think about using an existing Employee Benefit Trust if you've got a surplus cash available in it. So there are a number of ways in which this could be done but the key thing in any case is to think about what the tax consequence will be. So if it's a simple cash grant that's going to be fully taxable, fully NI-able. If it's a loan then usually that will be tax neutral because there's an exemption from the benefit-in-kind-charge if the loan is under £10,000, but you just need to be a little bit careful, particularly if the loan is waived, that could have tax complicated consequences. The other thing about loans is it can get you into consumer credit problems, which is obviously not a tax issue but it is something we're aware of from discussion with colleagues - that can be quite complicated and involve getting authorisations if you don't have them, so it may not be something you want to kind of go with in practice. I mentioned setting up a charity as a possible option if it's a longer term scheme and, as I said, the key advantage to that is it should then be possible to get support to employees without any tax liability, which obviously is good. It can also have optical advantages and it also allows for other employees to be able to contribute to it if that's something that you might want to do as part of your charitable giving proposition. On the other hand, it does involve some additional governance considerations, some extra legal steps, you do have to register with The Charity Commission and there is a process and some additional considerations would have to be thought about, although it might be possible to start providing benefit spending getting the charity actually formally registered, if you wanted to do that, but that's a little bit more complicated, but again it's something that we have looked at with some clients. So as I say, there’s a whole menu of things that you could do and it's very much a question of what your priorities are, how simply you want to keep, but it's something, as I say, that we have been helping clients with quite a bit. Just one final point to note is that we are seeing, in some cases, people wanting to make payments to family members of employees who are deceased. Just a note of caution that if you're doing that as an ad hoc thing, i.e. not under a tax-approved death in service scheme, and insurance-backed scheme, if you're just doing an ad hoc basis that is likely, unfortunately, to have tax implications so just be aware of that and seek advice before committing or going ahead.”

Chris has written in detail about the various issues that need to be considered before putting in place this kind of financial support for employees.  His Outlaw Guide is called ‘Setting up an employee benevolent fund in the UK’ and is available from the Outlaw website. We have put a link to it in the transcript of this programme.

LINKS
- Link to People Management article: ‘Surge in workplace financial support requests: do businesses have a duty to help?’
- Link to Out-Law guide: ‘Setting up an employee benevolent fund in the UK’