Jonathan Grey of OptionsCard on how to tax-efficiently reward your staff.
As year-end approaches, business owners, administrators and HR professionals are looking at how they can recognise and reward their employees through promotions, bonuses, gifts and experiences.
According to research from Deloitte, in organisations with recognition programmes in place, employee engagement, productivity and performance are 14% higher than in organisations without recognition.
“Remember, investing in your employees is not just a strategy for retention—it’s a pathway to a thriving business”
We all talk about the value of employee engagement in our hybrid world – and it does matter because a 15% improvement in engagement can result in a 2% increase in your margins. We are also in a highly competitive talent market, so it has never been more important to acknowledge and reward your team with incentives and peer-to-peer recognition.
Understanding the €1,000 tax-free incentive
In Ireland, the €1,000 tax-free incentive for employees – which is part of the Small Benefits Exemption scheme – allows employers to provide employees with non-cash benefits up to the value of €1,000 annually without incurring tax, PRSI, or USC liabilities.
This represents a saving to the employer of more than €1,300 over awarding the same value in cash to a higher rate taxpayer! The good news is, all employees are eligible for this, including part time and temporary workers. So, it presents a fantastic opportunity to boost morale, productivity and recognise those performing well in your business with a Christmas gift. It is also a key to enhance your company’s reputation as an employer of choice.
The range of non-cash benefits includes vouchers or benefits that can be used to purchase goods or services, but they cannot be redeemed for cash. However, there’s a lot of options now including digital gift vouchers that can be redeemed with retailers nationwide or pre-card Visa or Mastercard cards – so employers and employees have more choice.
Businesses can use this as a single reward payment or as two smaller amounts throughout the year – and if employers give vouchers over cash they will not be taxed, whereas cash rewards or bonuses are taxed as income. The watch out here is that if a single benefit exceeds €1,000 in cost to the employer, the full value is subject to tax. For example, if there was as little as a €5 fee paid on a €1,000 award to an employee, the full tax burden is due on €1005!
If two rewards are provided, the combined value of the award, including any associated fees with acquiring the awards, cannot exceed €1,000. You may have seen the announcement in Budget 2025 that this scheme is changing and from January 2025 it will allow for up to five non-cash benefits annually with a cumulative annual limit of €1,500 – which is great news for employees. But remember this won’t come into effect until then so the limit is still €1,000 for Christmas 2024 gifting.
Tailor rewards to employee preferences
To maximise the impact of your rewards programme, it’s crucial to tailor incentives to meet the preferences of your employees. Some conduct surveys or informal check-ins to understand what types of rewards resonate most with the team. But this can be time consuming and smaller organisations may not have the capacity to do this level of research.
Digital gifting is now available to employers and HR professionals that allows the employee to pick their preferred gift – taking the onus off management. Furthermore, digital employee reward cards can streamline the distribution process and make it easier for employees to redeem their rewards – they are also the more sustainable plastic-free option.
Promote a culture of recognition
Alongside rewarding through the small benefits exemption scheme, it is important to encourage a culture of recognition linked to company goals. After all, a word of praise can be worth its weight in gold. Our larger corporate clients all have these systems in place to ensure a holistic rewarding culture. This can be simple monthly or annual awards linked to targets that encourage people to nominate their peers.
Or you can invest in something more lavish like a recognition event where employees can celebrate each other’s successes, making the reward distribution a memorable occasion. These initiatives implemented consistently foster camaraderie and will make the benefit or tax-free reward even more impactful.
Finally, continuously monitor the effectiveness of your rewards programme. Gather feedback from employees on what’s working and what could be improved.
Remember, investing in your employees is not just a strategy for retention—it’s a pathway to a thriving business.
Main image at top: Photo by Priscilla Du Preez 🇨🇦 on Unsplash
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