Social Security

U.K. employers and employees must contribute to social security under the National Insurance Scheme. National Insurance Contributions (NICs) fund government benefits programs that provide financial support to individuals who are unemployed, ill, retired, or on parental or bereavement leave. Employer and employee deductions depend on several criteria, including the employee's insurance category and earnings. Most employers contribute 13.8% of the employee's earnings, and most employees pay a 12% tax on their weekly earnings between £242 and £967 and 2% on weekly earnings above £967.

National Health Insurance

The U.K. offers free medical care to all citizens and qualifying residents under the National Health Services (NHS) universal healthcare system. The NHS covers medical services like preventative care, surgical procedures, ambulance rides, emergency room visits, pre-existing conditions, and ongoing treatment programs. The NHS also subsidizes additional healthcare items, such as prescription medications. While the NHS standardizes healthcare costs in the U.K., the system varies in each region. England, Northern Ireland, Scotland, and Wales each have their own NHS healthcare system, so employers must learn the local requirements depending on their workforce's locations.

Pension

The U.K. employers must contribute to a workplace pension scheme. Employers enrol all eligible employees in the pension, which includes employees aged 22 and older who work in the U.K. and earn at least £10,000 per year. Both the employer and employee contribute to the retirement, with employers contributing at least 3% and the employee contributing 5%. The contribution rates may vary depending on the employer's chosen pension scheme. Individuals become eligible to receive their state pension at age 65, but there is no mandatory retirement age in the U.K.

Sick pay

The U.K. employees are entitled to 28 weeks of statutory sick pay at £109.40 per week. To qualify for statutory sick pay, employees must earn an average of at least £123 per week and have been ill for at least four consecutive days. The employer covers the payment, which is subject to income tax and national insurance contributions. U.K. employees must also provide a physician's sick note for all illnesses lasting longer than seven consecutive days.

Private medical insurance (PMI)

Employers often offer private medical insurance (PMI) to cover medical needs not covered by the NHS healthcare system. The private healthcare market coverage may include inpatient, outpatient, wellness, dental, and vision benefits.

Additional paid time off

U.K. employers may provide their employees extra paid leave days beyond the statutory annual leave requirement. Many employers may also offer employees the option to increase their holiday entitlement and purchase extra leave days in their benefits package.

Additional retirement benefits

Employers may contribute more to their employees' pension funds Employers must contribute 3% but may choose to match an employee's contribution of up to 5%.

Dental and vision insurance

The NHS provides subsidized dental care coverage, and individuals must pay contributions toward the cost. The NHS also provides free eye tests, but individuals typically pay for vision services such as eye exams and glasses prescriptions. To help cover these costs that the NHS doesn't subsidize, employers may include additional dental and vision insurance as a supplemental benefit in their employment compensation packages.

Life insurance

U.K. employers may include life assurance policies in their supplemental benefits plans. Under this insurance, the employer pays the employee's beneficiaries if the employee dies while working for the company.

• Company car. Employers might provide employees with a company vehicle, car allowance, or fuel reimbursement. This fringe benefit is beneficial in a work environment where employees travel frequently.
• Flexible working hours. Many employers implement flexible work policies, such as remote or asynchronous work. Flexible working hours give employees more control over their work-life balance and allow them to work when they are most productive.
• Sabbatical leave. In addition to statutory leave, employers may allow employees to take extended paid or unpaid time away from work to pursue personal interests. Allowing employees to take sabbatical leave improves company morale and productivity because employees are more likely to return to work refreshed and motivated.
• Meal vouchers. A company might offer meal vouchers to employees for client meetings or to help offset the cost of living. Offering meal vouchers may improve employee morale, health, and productivity.
• Wellness funds. Employers may provide an allowance for health and wellness-related expenses, such as gym memberships. Wellness funds allow employees to improve their well-being, resulting in higher job satisfaction and productivity.
• Bonuses. Employers often offer supplemental pay like bonuses to celebrate employees' professional achievements or celebrate company success. Bonuses help motivate employees and boost morale and engagement.

Tax treatment of different types of benefits

Each benefit under the category is taxed differently. As a business, when you pay for employee benefits through a government scheme such as healthcare or retirement benefits, employers pay under the PAYE scheme (Pay as you earn scheme). For privately funded expenses, employers must calculate taxes per the UK norms.

Understanding tax-efficient benefit structures

The government schemes and programs offered are tax efficient and help cut down on taxes by mutual sharing of expenses between the employee and employer, such as in the case of pension schemes where the employer and employee contribute a total of 8 per cent. The government funds part of these payments in the form of tax returns, which adds to the accrued pension fund and is available for use by age 60. Private contributions may attract more taxes and need to be calculated differently.

Reporting and compliance with HM Revenue and Customs (HMRC)

All expenses in the name of employee benefits need to be reported to the HMRC. Employers using government schemes do not need to report them to the HM Revenue and Customs. Still, these expenses must be notified and reported to the HMRC for privately funded and contributed benefits to the employees.