POLICY AND RESOURCES (HUMAN RESOURCES) SUB COMMITTEE

Transcription

1 NORTH LANARKSHIRE COUNCIL REPORT To: POLICY AND RESOURCES (HUMAN RESOURCES) SUB COMMITTEE From: HEAD OF HUMAN RESOURCES Subject: NORTH LANARKSHIRE COUNCIL - CONSIDERATION OF SALARY SACRIFICE CYCLE Date: 23 August 2010 Ref: IW/SH 1 Introduction 1.I The purpose of this report is to advise the Sub Committee of the outcome of an exercise to consider an option to utilise a salary sacrifice scheme to provide bicycles for staff to enable them to cycle to and from work Background North Lanarkshire Council has undertaken a number of health promoting activities as part of the progress towards the attainment of the Healthy Working Lives (HWL) Gold Award. As part of the ongoing work within the HWL scheme, the Council took part in Bike Week 2008, a national campaign aimed at raising awareness of the benefits to be gained from cycling and to encourage people to keep fit through cycling. It was viewed that this was a good initiative for the Council to take part in, not only as part of the HWL progress but also to encourage employees to improve their fitness and their health through cycling. A number of retailers within the Lanarkshire area agreed to offer bike MOTs and discounts off their prices for bikes and accessories. Employees were also offered the opportunity to hire bikes at Strathclyde Park at reduced rates during Bike Week. Prior to Bike Week, a number of employees and a local business had made enquiries about the potential for the Council to introduce a salary sacrifice scheme for bicycles. Participation in the national campaign afforded an opportunity to assess how many employees would be interested in such a scheme, similar in nature to the home computer scheme. Cyclescheme is an independent company created to help employers and employees make the most of the Government s Green Transport Plan Initiative. The scheme involves employers purchasing, bicycles and associated accessories such as helmets, locks and lights, with the employee paying the employer back the cost of their bike and accessories. The deduction is taken from gross rather than net pay, allowing the employee to benefit from income tax and national insurance relief. This process also permits the employer to benefit from reduced national insurance contributions in respect of an employee s remuneration (12.8% of employee salary). A range of providers offer a similar type of scheme all aiming to encourage employees to cycle to and from work as an alternative means of transport and for leisure purposes. It should be noted that previously HMRC ruled that salary sacrifice schemes were not subject to VAT (a VAT gain to the provider) but due to recent European legislation coming into force VAT will now be applicable. 132

2 2.6 Included as part of the Bike Week campaign, a survey was undertaken, asking employees to answer a number of cycling related questions. One of these was as follows: Bikes can be purchased from many different retail and online outlets and many of our local retailers are offering NLC staff discounts during Bike Week. Bikes can also be purchased cheaply at police auctions, details of which can be found on connect NL. Another option is for emdloyers to introduce a salary sacrifice scheme to allow employees to gain some tax benefits. If such a scheme was offered by North Lanarkshire Council would you use it? Employees were made aware of the survey via posters displayed on HWL notice boards and also via an all users . This was sent out twice to all employees, once prior to and once during Bike Week to encourage participation. A total of 162 responses were received from the survey, providing an overall Council response of less than 1%. This return level was somewhat disappointing as previous surveys, using this format, have received a much higher response rate. Of the 162 employees who responded, 104 answered YES, they would use a salary sacrifice scheme, This gives a positive response of 64% of those participating and approximately 0.6% of the Council s employee base. In addition to surveying employees on whether or not they would participate in a cycle to work scheme, employees were also asked to indicate what facilities they thought employers should provide to encourage employees to cycle to and from work. The majority of responses requested provision of: shower facilities; secure bike storage and lockers to permit a change of clothing. It would be difficult to determine the number of locations where additional facilities may be required and to estimate their potential cost The salary sacrifice scheme relating to cycling to work would involve the Council signing up to the scheme for a minimum of one year, with employees agreeing to a deduction from their salary on each pay date, as repayment for the loan on their goods (in this case a bicycle and certain accessories) Cyclescheme suggests that, from experience of operating the scheme with other employers, they would expect a take-up of around 36% of employees participating at an average of 578 per bike which, if funded by the Council, would suggest a budget of between 312,000 and 520,000 would be required to carry out the initial purchase of the bikes, with this funding being recovered over a 12 month period. Although the survey response would suggest the funding level required may in fact be lower, estimated at 60, It should also be noted that if the cost of purchase was to exceed f 1000 for each bicycle and associated equipment then a consumer credit licence would need to be purchased by the council ( 970 initial application fee). An option to cap the value of the scheme can be cons idered The salary sacrifice scheme would mirror the recent provisions for home computers The Council s participation in a salary sacrifice scheme for the purchase of bicycles has been the subject of enquiry from a local cycle shop owner, who has also prompted enquiries from the local Member of Parliament and the local Member of the Scottish Parliament. Responses to date have indicated the matter was being researched and that consideration of the matter by the Corporate Management Team would take place. Consideration of the matter took place at the Corporate Management Team meeting of 6 June

3 3 Considerations An extremely low response rate for the survey would suggest that there is a limited number of employees who are either currently involved in cycling or wishing to take up cycling. One hundred and four employees have indicated an interest in participating in such a scheme. This equates to a funding requirement of around f60,000 or f578 per bike. However, based on Cyclesheme s projection of a take up between 3% and 5% there is a potential for a funding requirement of up to f520,ooo. Realistically, it is not envisaged that this level of funding would actually be required, but it remains a possibility. The salary deductions would make the purchasing element of the scheme cost neutral over the 12- month period. It remains however difficult to quantify the administration costs associated with the implementation of the scheme. Should the level of expenditure equate to f60,000 it is estimated that the council would save around f7,700 in National Insurance contributions. This would be offset by the associated administration work for a number of council services to include procurement, human resources, payroll and controls and reconciliation. Uptake of the scheme may well depend on the effective provision of shower facilities/secure storage etc. for which a source of funding would also need to be identified. Timescales to introduce a salary sacrifice scheme for cycling is likely to be in the order of 6 to 12 months as tendering processes take place and approval from HMRC is obtained. The duration of a Cyclescheme contract would be 12 months. At the end of the 12 months, the employer has the option to terminate the contract, which requires three months notice to have been provided and, at this point, the employer is permitted to sell the equipment to the employee at Fair Market Value, a table from HMRC illustrating the disposal value percentage is included in Appendix 1 HMRC valuation table. Alternatively, the employer may transfer ownership of the equipment to Cyclescheme at no cost to Cyclescheme. Cyclescheme then administers collection of the Fair Market Value or disposal payments from the employee. Experience with the salary sacrifice scheme for home computers has highlighted a potential difficulty in recovering the monthly payments from employees should they leave the service of the Council. The monthly repayments taken from their salary would need alternative payment arrangements made, should an employee leave. Currently, some employees associated with the home computer scheme have left the Council and have failed to make payments. In these circumstances, the Council is effectively paying for the bicycle whilst alternative payment arrangements are made and overdue payments recovered. The use of the scheme would become part of the terms and conditions of employment and in the unlikely event that a provider went out of business, the Council would be obliged to source alternative scheme providers. The level of resources required is believed to be reflective of that utilised for implementation of previous schemes e.g. home computer scheme. This comprised of a working group made up of representatives from payroll, procurement; legal and human resources who researched the schemes available, carried out the tendering process and then implemented the chosen scheme. This took approximately 12 months from outset to implementation. 134

4 3.10 The scheme is aimed at encouraging employees to cycle to and from work as per paragraph 2.5, and, as such, consideration would be required to be given to any potential impact on the exigencies of the Service should any employee taking up this scheme be required to travel between Council premises as part of their daily role. Not only is there a need to further enhance the cycling infrastructure within many of the local towns to allow this to happen as safely as possible, but the use of bicycles for work activities will require to be risk assessed and measures to ensure appropriate levels of competence would need to be established. This aspect of cycling falls outwith the terms of this report, which is focused solely on cycling to and from work and not in work Whilst the Healthy Working Lives scheme is a tool being used successfully to encourage healthy lifestyles amongst the employees, there is no specific budget available to fund the activities. The adoption of a cycle to work scheme would require a budget to be established although the overall cost would be recovered through salary deductions and resources to manage the programme would need to be identified Cycling as a leisure activity will continue to be promoted within the activity programmes associated with the Council s ongoing participation in the Healthy Working Lives scheme In researching the matter, benchmarking partners, along with other neighbouring authorities were contacted and asked about their participation in such a scheme. Of those surveyed half were using a scheme of this type. A table is included in Appendix 2 Cycle To Work Scheme Research Within Local Authorities, detailing results for six Scottish local authorities who implemented a cycle to work scheme and illustrates the uptake One neighbouring authority has suspended the use of its scheme as some issues relating to the application of the scheme are being discussed with HMRC regarding the disposal value noted in 3.6 above The discussions relate to the value of the final payment made by the employee in order to gain ownership of the bicycle, and whether it is of an appropriate level. If the value is too IOW, then there is a thought that the difference between the market value and actual payment made should be taxable as a benefit. Since HMRC confirm this as their position, this would infer that the employer would have to arrange for a valuation of any bicycle prior to a final payment figure being agreed. 4 Conclusions 4.1 From evidence gathered, it appears that the provision of a salary sacrifice scheme for cycles would attract a small number of employees and take 6 to 12 months to facilitate. 4.2 There is a potential to save some f7,700 in employee costs should a f60,000 outlay be required. 4.3 There may be a need to purchase a consumer credit licence at a cost of f970, unless a limit is placed on the value of any cycle package purchased. 4.4 Facilities which may be also be required such as storage, showers etc would also bring cost implications and at this time these are not known. 4.5 It is noted that the salary sacrifice scheme may well require intensive administration from a number of council services to establish the scheme and administrative support to ensure the scheme continues to operate and the required repayments are being maintained. The staffing costs associated with this would reduce any potential savings to be made. Depending on uptake, operation of the scheme could be a cost to the council. 135

5 4.6 The adoption of a cycle to work scheme will benefit a small number of employees and utilise resources that might otherwise be used for core activities without bringing significant savings to the Council. On this basis, it is difficult to justify pursuit of such a scheme, particularly in the current economic climate and with the ongoing emphasis on core business activities. 4.7 Activities and events to promote healthy living amongst our employees will continue to take place, with such events continuing to feature cycling as an activity. Related health survey work could provide a vehicle, within the next months, to re-assess interest in such a scheme. 4.8 It may take some months to achieve clarification on how HMRC intend to deal with the issue of VAT. 4.9 With the sub committee s approval it is intended to advise the consultative employee groups, i.e. the JCC and JNCT, of the outcome of this consideration process 5 Recommendations 5.1 The Sub Committee is requested to: Consider the content of the report; Endorse a recommendation that pursuit of a salary sacrifice scheme for bicycles is inappropriate at this time; and Note the intention to review the matter in the next months as circumstances perm it Note the intention to make the consultative employee groups aware of this considerat ion l/-n.lc--. l Head of Human ResourcRs a For further information on the content of this report please contact Stuart Hamilton, Principal Health and Safety Officer on (01698)

6 Appendix 1 Age of cycle Acceptable disposal value percentage ~~ I

7 Appendix 2 Council A B C D E F Length of Size of Scheme Provider Scheme Council Uptake Problems Facilities Yes Halfords 2 years 5, None N/A HMRC Stopped Halfords N/A 18, Ruling N/A Cycle Showers, Lockers already available. Built new bike Yes Scheme 2 years 4, None shelter. 80, 60, 80, Showers added at a cost. European funding for Yes N/A years 30 None shelters. Cycle Yes Scheme 1112 years 7, None Lockers, Storage, Showers, Changing facilities Walker Yes Cycles 1 year 7,000 N/A None Some buildings only