Employers are often keen to offer a salary packaging program to staff. How they provide it, though, is big decision in itself! Many will weigh up their options when it comes to managing the program internally versus outsourcing it to a salary packaging provider. Even though we’re an outsourced provider ourselves, we’ve seen both sides of the fence and have a lot of experience in tailoring programs for employers, so here are our some of our observations.
Your FBT Status Makes a Difference
Salary packaging programs will be considered and offered by employers across all different FBT categories. Some will be full FBT paying private companies and others will be NFPs with rebateable or exempt status. This can make a difference as the types of benefits offered can vary greatly across these categories.
It Often Comes Down to the Benefits Available
A salary packaging program is really all about the benefits being offered to employees. Salary packaging is an employer-provided benefit. The employer can choose what to include in the program. This will often vary depending on the FBT status.
For example, if you’re the owner of a private company wishing to offer salary packaging to employees, the benefits and options are a touch more limited compared to, say, an FBT exempt organisation. Private, for-profit employers will usually see their staff take up novated leasing benefits, which are hugely popular. As this would be the primary (or often only) salary packaging benefit being used at that employer, engaging with a specialist novated leasing provider to deliver the service is the obvious option. The provider will set up the leasing finance, provisions for running costs, and manage the vehicle through the life of the lease.
FBT exempt and rebateable employers, on the other hand, may wish to offer other benefits such as mortgage and rent payments. For smaller exempt organisations, these can be managed fairly easily internally. For rebateable employers, salary packaging these items might not actually deliver a benefit at all (or a rather negligible one).
You can read more about salary packaging across various sectors here.
The Number of Employees Makes a Difference!
When it comes to FBT exempt employers (our particular area of expertise), we’ve seen some great salary packaging programs managed internally by NFP organisations. They manage the payroll deductions and reimbursement payments, along with the record keeping. For a smaller number of staff, this can be straightforward and successful. Managing a salary packaging program internally will therefore be popular for NFP employers with less than 20 staff members. That said, there are organisations running it themselves for hundreds of staff!
From our experience, FBT exempt NFPs start to look at outsourcing when the program starts eating up too much time. This is usually due to the growing number of employees and/or the appetite to expand the program to include a wider number of benefits and payment methods.
Is it Easy to Manage Internally?
For FBT exempt employers, it can be fairly easy. Organisations may choose to offer a handful of salary packaging benefits, such as mortgage, rent and credit card payments, up to the $15,900 annual limit. The pre-tax deductions can be established in the payroll software, which will also look after reporting. Then it’s just a matter of setting up an easy process for employees to sign an agreement and provide their proof for reimbursement.
Is it Easy to Outsource?
It should be! GO Salary can transfer an internal salary packaging program to our platform quickly and easily. It saves employees having to do the work themselves. Integrations with the payroll software can be established which will save the Payroll team time, too.
What are the Benefits of Managing Internally?
For FBT exempt employers, one benefit is that they can choose to provide the program at no charge to staff. There is also guaranteed visibility around the salary packaging program because they have the pay-to-pay dealings with it.
What are the Benefits of Outsourcing?
Again, we’re focusing on FBT exempt employers with this answer, as they have a lot of salary packaging options to provide to staff. Outsourcing allows a potentially wider range of benefits (e.g. meal entertainment, holiday accommodation, remote area benefits, etc.). The FBT risk and payment responsibilities are also shifted to the third party provider, which often appeals to employers. Employees also might prefer to deal with an outsourced provider so that they are not providing their personal information (such as loan statements) to their employer. Finally, outsourcing usually delivers tremendous time savings when the number of employees at an organisation grows and grows.
Things to Look For in an Outsourced Provider
We are resisting the temptation to go overboard and plug ourselves here! But at the very lease, employers should carefully choose their provider. It’s important that the employees get their benefits paid accurately and on time. You should always have a direct point of contact at your provider in case something was to go wrong. Compliance and reporting features are also crucial. Outside of these necessities, employers should consider whether their provider offers a fully secure portal, integration with payroll software formats, the range of benefits, accessibility features, the transition process, application and salary package management for new and existing staff, and more.
If you’d like to discuss further, please contact us!