Joe Brewer Consulting Partner

The Covid-19 pandemic has had a severe impact on manufacturing productivity. With UK car production down by 40.2% (YTD) and just under a fifth of manufacturing companies operating at full capacity, the industry is faced with a challenge.

When manufacturing productivity falls behind and deliverables are not hit, it impacts every department from assembly line to warehouse all the way through to transportation and the end customer.

However, many manufacturers make the mistake of simply upping investment in their tools and technologies to improve productivity. And whilst this can help, it is just as important to keep your people in great shape by showing meaningful appreciation on a day-to-day basis.  

Employee rewards to boost manufacturing productivity

Here are a selection of tax efficient employee rewards for your employee base...

Trivial Benefits

A trivial benefit is a great way to show your appreciation for your employees at a fairly low cost. Non-cash items (such as wine, chocolates or a hamper) worth up to £50 can be awarded to your employees’ tax free. The key condition is that is can’t be a reward for performance or work done – there must be another reason to give the gift (i.e. a birthday or birth of a new baby).

There isn’t a limit to the number of items that can be awarded in a tax year, except for directors (or their close family) where there is a limit of £300 per year.

Click here to view a selection of Covid-19 safe tax free gifts for employees.

Working from home allowance

If a number of your employees are still working from home, you can pay a fixed amount of £26 per month (or £6 per week) to cover extra costs incurred for homeworking. Or you could simply reimburse for any allowable costs which include extra insurance, telephone costs, extra heat and electricity.  

This small gesture can go a long way, showing that you still recognise the contributions your home-working employees are making to the business.

Employee Suggestion Schemes

By launching an employee suggestion scheme you can create a culture of innovation and allow your employees to feel connected to the growth and development of the business. Even if they are working remotely.

There are two kinds of tax efficient awards you can provide for employee suggestions: 

  • Encouragement awards - for good suggestions or to reward your employees for special effort. Encouragement awards are exempt from tax and National Insurance up to £25.
  • Financial benefit awards - for suggestions that will save or make your business money. Financial benefit awards can be exempt up to £5,000 subject to certain conditions, see here.

Ownership Rewards

You could consider giving key employees and managerial staff a small or minority ownership in your business. This could be a gift of a few shares or to include them as partners or members of an LLP.

Minority ownership has the following advantages:

  • It will help to ensure they remain with you for the long term.
  • You reward with shares or ownership instead of cash, which very helpful right now whenyou are trying to conserve cash.
  • As a shareholder or partner, it can be structured so that there will be both tax and national insurance savings on their earnings.
  • By giving your employees this status, it will formalise your appreciation of them.

A word of caution... ensure you consult with a lawyer to help with this, a robust shareholders agreement or partnership agreement is essential.

Employee Share Plans

Employee share plans allow your employees to own a piece of your business. And there are 5 key wins:

  1. They align your employees with your business goals, so your success is their success.
  2. It’s proven that employees on a share plan are far less likely to leave.
  3. Tax savings.
  4. Increases the value of your business.
  5. No cash needs to change hands, which is helpful right now when you need to preserve cash.

Bonus Pledges or Deferred Bonuses

Bonuses can be deducted from company profits if they are paid within nine months of the accounting year end. This might be particularly relevant if you have been fortunate enough to make extra profits during this crisis or if an employee has gone above and beyond in keeping the ship afloat, maybe covering for furloughed workers.

A bonus pledge is where you commit to a bonus, but payment is deferred - you can formalise now but pay within nine months of the year end to set against tax. The result is rewarded and motivated staff whilst conserving cash flow!

In summary, employee rewards can make a big difference to manufacturing productivity. From assembly line workers all the way through to the leadership team, all employees can benefit from recognition during these turbulent times. When employees receive recognition with a thoughtful employee rewards program, it increases their commitment to the role and their loyalty to this business. This in turn can have a positive influence on production levels, speed and engagement.

If you need more support and guidance in rewarding your employees in a tax efficient way, get in touch.

(Disclaimer: This article is no substitute for professional advice - Any changes in business ownership or sharestructure will have tax and legal implications and professional tax and legal advice must be taken.)