Yet how do you encourage employees to work hard and grow the business when salaries are stagnating and the cost of living is rising rapidly? That is a question that many small business owners will be asking themselves as the gloom on the high street spreads to other sectors. Already a raft of public sector employees have railed against below-inflation pay rises, including prison officers, teachers, hospital workers and local government staff.
Cash-strapped employers are looking for new and inventive ways to boost staff morale and stimulate growth, without stretching already strained purse strings. One way businesses are doing this is through voluntary staff incentive schemes, where employers provide access to third-party goods and services at a discount. This may include ‘experiences' such as white-water rafting or skydiving, trips abroad or simply vouchers for purchases at premium outlets, petrol stations or the weekly shop.
The key to voluntary schemes is that employees pay for the products or services out of their own pocket, albeit at a reduced rate. These schemes are generally very cost-effective for employers, which only need to account for the time spent researching suppliers and minimal set-up costs.
Voluntary benefit schemes help employees get more for their money. "Organisations are trying to increase the spending power of employees," explains Charles Cotton, adviser, reward and employment conditions, at the Chartered Institute of Personnel and Development (CIPD). "Given the current economic climate, they are helping your cash go further."
CIPD did just that by negotiating deals with local businesses near its headquarters in Wimbledon, west London. Employees at the 300-strong office enjoy a 10-15% discount at the local hairdressers, dry cleaners and some restaurants. "This works well if large chunks of the staff live locally," says Cotton.
Reward schemes based on retail vouchers are another growing trend. These can be used to motivate staff, reward effort or incentivise sales teams. The vouchers are typically provided in cash amounts, which can be for as little or as much as the employer chooses and are redeemed for goods and services. The advantage of this type of incentive is that it can be set up at very short notice and doesn't require a minimum spend or ongoing commitment, making it ideal for a one-off ‘thank you' or a reward for individual or team performance.
‘Offering an incentive that will suit everyone is virtually impossible, but evidence exists to indicate that non-monetary incentives and rewards are more attractive than a cash equivalent'
For example, UK retailer House of Fraser operates a voucher-based service called Business Incentives, which can be redeemed in any of its stores nationwide. Available for next-day dispatch, denominations start from as little as £1 and go up to £50 per voucher and are redeemable against all purchases, including sale goods and FraserCard account payments. As an extra bonus for employers, discounts are available for voucher purchases over £1,000 within a 12-month period. The discounts start at 2.5% and can go up to 10% for total purchases over £15,000.
"Offering an incentive that will suit everyone is virtually impossible, but evidence exists to indicate that non-monetary incentives and rewards are more attractive than a cash equivalent," says Catherine Forrest, business incentives manager at House of Fraser. "Many companies are turning to vouchers to provide a solution to staff incentive and reward problems. Our experience is that running an incentive scheme is a good teambuilding and motivational exercise and something that really works."
Incentives for all
A commonly held idea of staff incentive schemes is that they are too complicated or too expensive for small firms but this is no longer the case. A number of third-party suppliers have sprung up in the past few years that specialise in this market. "Small businesses often think that these programmes are not available to the smaller players but they are," says Derek Hardman, managing director of Capital Incentives and Motivation, part of the French-owned Accor hotels and services group. "The scale of our clients' businesses ranges from five to six employees up to blue-chip companies."
Like other third-party suppliers, Capital Incentives and Motivation offers a range of products and services, including a fully-managed online rewards system. This includes branded reward cards that are regulated by the FSA and used like normal credit cards. Employers deposit money onto the cards and employees choose when and where they redeem it. One exceptionally hard-working individual managed to save up enough credit on this scheme to buy two motorbikes, says Hardman.
Third-party suppliers can also offer firms greater economies of scale. "We offer access to over 30,000 different outlets across the UK," says Kuljit Kaur, head of business development at the Voucher Shop, part of marketing communications company P&MM. "Voucher Shop had a turnover of £75m in 2007. This gives us buying power with clients. Then, depending on the volumes that our customers purchase, we can pass some of those discounts onto them."
The Voucher Shop offers a range of gift vouchers from sport and leisure to groceries and fashion. Individuals can choose from a selection of holidays, days out and entertainment including music, books and videos. It also offers a branded ‘chequebook' product for ad hoc benefits payments.
‘Small businesses often think that these programmes are not available
to the smaller players but they are. The scale of our clients'
businesses ranges from five to six employees up to blue-chip companies'
Voucher-based benefits schemes are paid for upfront, either by cheque, debit or credit card. The vouchers are treated like cash, which means that the purchaser bears the onus of responsibility for lost or stolen vouchers. While some third-party suppliers include tracking devices such as serial numbers and barcodes, this does not guarantee a refund should the worst happen.
Taxing times
It is also worth knowing that most staff incentive schemes attract income tax and National Insurance Contributions (NICs). A cash voucher, for example, is taxed in full, based on the face value of the voucher, in the same way as regular pay. Income tax and employee NICs are due and must be accounted for through the PAYE system, warns the Voucher Association, a trade body.
A non-cash voucher is one that is exchanged for goods or services, and is treated as a ‘benefit in kind'. Income tax and NICs are due on the taxable value of the vouchers given to any employee earning more than £8,500 per annum. Where the employer purchases the voucher at a discount, only the discounted value is subject to tax and NICs.
Passing on that tax burden to employees may diminish any motivational effect. For this reason, the Voucher Association recommends employers deliver all benefits free of tax and NICs to the recipient by arranging a payment plan with the Inland Revenue. Some government-backed incentives, such as childcare vouchers or cycle-to-work schemes, are totally tax-free and can save both the employer and employee money on NICs.
Yet sometimes the most successful initiatives are the ones that simply bring people together in a fun way. Technology PR company EML launched a ‘bake-off' last year as a motivational scheme, for example. The seven male and nine female staff are paired off to go head-to-head each Monday with homemade cakes and pastries.
"It's not obligatory, but everyone is really keen to join in," says Jo Emerson, a member of the EML Blog team. "Most of the guys have baked (or conned their wives into it) but we do sometimes do a [supermarket] raid if we run out of time on the Sunday."
Emerson says, other than the joy of free cake every Monday, the scheme goes to show that "you don't have to spend a fortune to motivate your staff". And in these troubled times, motivated staff without spending vast sums is exactly what you need.