Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1. 1.1 The purpose of this paper is to set out proposals for the introduction of the Cycle to Work salary sacrifice scheme and seek Employment in Hampshire County Council (EHCC) Committee approval for the schemes implementation in September 2009.

2. 1.2 This paper seeks to

· set out how the scheme will operate

· highlight the potential costs or savings of the scheme

· look at the key issues

2. Contextual information

2.1 To promote healthier journeys to work and reduce environmental pollution, the 1999 Finance Act introduced an annual tax exemption, which allows employers to "loan" cycles and cyclists' safety equipment to employees as a tax-free benefit.

2.2 In June 2007, Hampshire County Council Cabinet approved the Corporate Travel Strategy (CTS) which aims to promote and enable the use of sustainable modes of travel to all employees.

3.

3. How the Cycle to Work salary sacrifice scheme will operate

3.1 Under the proposed scheme employees will be able to choose a bike and associated equipment up to the value of £1,000 (including VAT). The County Council will purchase the bike and in effect lease it back to the employee via a salary sacrifice agreement. The employees gross salary will be reduced by the cost of the bike and equipment (excluding VAT) for a period of 12 months.

3.2 At the end of the hire period, the Council may be able to offer to sell the equipment to the employee for its fair market value at that date. Otherwise, it will be returned to the Council (or its nominated agent) at the employee's expense for disposal. The employees gross salary would then return to it's pre-sacrifice amount, as appropriate.

4. Cost/Savings of the scheme

Schemes are intended to be cost neutral for employers with administration and finance costs being roughly offset by employers national insurance savings

4.1 Savings for the employee

4.1.1 In addition to the VAT saving made on the cost of the bike the employee makes income tax and NI savings by sacrificing their salary by the cost of the bike and equipment, with the tax and NI being calculated on their net salary. These savings equate to approximately 30-40% of the purchase price of a bicycle and/or equipment.

4.2 Savings for the employer

4.2.1 The employer also makes National Insurance savings of 9.1% (12.8% if not in a pension scheme) of the amount sacrificed per employee. It is proposed that these savings should be retained at local budget level, minus a one off admin charge of £25 per application being charged, paid to County Treasurers.

4.3 Potential costs for the employer

4.3.1 The employers time in setting up the scheme has been absorbed within existing roles, principally the Corporate Travel Strategy Co-ordinator. The use of an external provider to administer the scheme presents no additional cost to the County Council as the company recovers its costs from the cycle providers'.

4.3.2 In October 2008 a ruling by Her Majesty's Revenue and Customs (HMRC) on salary sacrifice schemes and maternity leave clarified that an employer must continue to provide non-cash benefits throughout the whole of their maternity leave if the employee was in receipt of those non-cash benefits at the start of their maternity leave. Further more, and in accordance with HMRC guidance, these must be provided at the employer's expense where there is no salary to sacrifice and salary sacrifice cannot be applied to Statutory Maternity Pay (SMP) or nil pay. This ruling will apply to the proposed cycle to work scheme.

4.3.3 Projected calculations based on estimated numbers of staff who may join the scheme, the estimated value of the bike and current maternity leave figures indicate that the scheme would remain in `credit' and any cost arising from continuing to provide the benefit during maternity leave could be covered by the schemes savings.

4.3.4 If any significant number of staff in the scheme took maternity leave whilst still having salary sacrificed in exchange for a bike there is the potential that the scheme may run at a loss. Only if more than 6% or more of those we anticipate joining the cycle scheme were on maternity leave would a potential loss arise.

4.4 Management of the scheme

4.4.1 Following a tender process earlier this year the proposed provider is P&MM Limited, who work with Halfords and independent cycle shops across Hampshire.

4.4.2 It is intended that the contract with P&MM, marketing and day to day management of the scheme will be managed by the Environment Department, overseen by Human Resources.

4.4.3 The administration including the processing of applications, paying the supplier, minimum wage checks and controlling payroll deductions will be carried out by the Leasing and Expenses Team in the County Treasurer's Department, who also administer the EHCC employee loan schemes. County Treasurers will apply a one off admin charge of £25 per application, charged by internal transfer to the cost centre benefiting from the savings.

5. Issues/risks

5.1 As with any loan agreement there is a small chance of default. In the event of an employee leaving the Council's payroll before the agreement has run its course, the County Council will make all efforts to recover costs.

6. Recommendation(s)

6.1 That the Committee approve the introduction of the Cycle to Work salary sacrifice scheme with effect from September 2009, and the provider P&MM Limited, a part of Motivicom Plc.

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy