Ask Us How: Incentivising Staff
Published on October 16, 2013 under NSW Business Chamber Partnership
As the market improves and the unemployment rate decreases throughout Australia many businesses are working through strategies on how to retain key staff through incentives.
Implementing financial based incentives are always the most attractive for your employees but it’s important to understand how this may affect your bottom line.
There are many financial incentives business owners can provide staff and it is important to know how these should be treated so that it is fair and equitable for both the business owner and their staff.
WHY ARE BUSINESSES TURNING TO INCENTIVES TO RETAIN STAFF
In an economic climate of low inflation with significant competition between companies for the recruitment and retention of staff, it is not a cost-effective option to continue to award high salary increases, bonuses or increasingly expensive benefits, to try and out do your competitors.
Companies are now looking for cheaper ways to recruit and retain staff and that is where incentive schemes and recognition schemes come in.
Companies now realise that individuals like to be rewarded in a variety of ways. Everybody is different, some people are not particularly motivated by money, but everybody can be motivated by something other than money.
Recognition schemes are increasingly popular with employers as a way of rewarding special efforts and commitment of valued employees. An awards scheme can generate much goodwill for a relatively modest outlay. Companies often regard recognition as a means of both improving performance and of increasing levels of employee satisfaction.
A great benefit of a recognition scheme is that it enables an employer to highlight desired actions and behaviours, holding up as role models those employees who best represent them. When deciding who merits an award, it pays to think about the kind of message the choice will send to the rest of the workforce.
A successful recognition scheme can help to motivate employees, create a culture of customer service and raise performance company-wide. Increasingly, employees qualify for recognition awards when their actions are seen to embody company values or focus attention on wider corporate goals.
WHAT SORT OF INCENTIVES ARE ATTRACTIVE TO STAFF THESE DAYS
There are many incentives that companies can implement to retain and motivate their staff. When implementing an incentive scheme it is important to consider what incentive would best suit the individual and what are their motivations and reasons for working in your company.
Some incentives to consider include:
Lump sum bonuses – Individuals are paid out a cash bonus and this is usually when a milestone has been reached. These types of incentive schemes are popular as most people appreciate extra cash. To be effective they should be linked to business performance in a way that will help drive productivity.
Salary packaging - Salary packaging is an effective tactic to attract talented senior staff and can include things like cars, costs associated with relocation as well as self education. The biggest advantage of this type of incentive scheme is the employee’s net ‘after tax’ position is improved. Employers will need to consider fringe benefits tax implications of this type of scheme.
Equity based schemes - These types of employee incentive schemes can form the foundation of success for a business, especially in its infancy and they have become more common in recent years. They are driven by key employees aligning their financial interests with the company so they become engaged in the long term commitment and success of the business.
Extra leave time - This type of employee incentive provides the opportunity for an employee to ‘buy’ extra leave time. It can work well as many employees value extra time to balance their work and home lives. It is also very tax advantageous for the employer.
THE TAX IMPLICATIONS FOR EMPLOYEE INCENTIVE SCHEMES
There are a number of important issues to consider before setting up an incentive scheme, such as tax implications for the business, what kind of scheme will work best for the organisation and how to structure and implement the scheme.
Before you make any promises to your staff about an incentive scheme it is essential to consider the tax and compliance issues and that’s where your accountant and other business advisors can help
The tax mainly associated with employee incentive schemes is fringe benefits tax (FBT) and it represents a cost to the employer. It can also be complex in how it is applied to different incentives, staff rewards and remunerations.
FBT impacts non-cash incentives, such as gifts, company cars, reimbursements, accommodations and salary sacrifice schemes. There are work-related items however that are FBT exempt, for instance items considered to be tools of the trade.
EMPLOYEE INCENTIVES AND YOUR BOTTOM LINE
When you have an employee incentive program, overall company costs can be reduced. Savings can be measured in the following areas: reduced hiring costs, reduced absenteeism, and reduced employee turnover. Your business will benefit from seeing a significant return on the investment due to increased motivation and productivity in the workplace.
Recognising your team not only promotes greater employee engagement, positive culture and improved performance, it will also improve your bottom line. In fact, rewards and recognition programs are a leading factor of greater financial returns.
Employees are an investment in your business. Cultivating an environment where great work is appreciated and recognized will help you retain the employees that you want on your team. It will also attract great new talent who want to be a part of such a nurturing environment. Take the time to figure out what motivates your employees and implement a reward program — it’ll be well worth the investment.