It’s likely you’ve heard the term payroll giving. Is it something your company does already? If not, is it something it should consider doing?
Payroll Giving was set up over 30 years ago as a way for employees to give money to charity without paying tax on it. The donation’s taken before tax but after National Insurance: the amount of tax relief depends on the rate of tax individual employees pay. So, for example, a donation of £10.00 per month will cost a basic rate taxpayer £8.00.
Payroll Giving can only be done if the employer’s set the scheme up with a Payroll Giving agency. Once it’s in place, deductions are made and sent to your agency each time you run the payroll.
The agency then passes the donations on to the chosen charities. Some agencies will charge an administration fee; this is usually deducted from employees’ donations although you could opt for your business to cover the fee so the charities get the full donation amount.
Businesses are able to deduct the costs of running the scheme from business profits before tax.
Is it worth going to the effort of setting it up?
There have been differences in the views expressed about quite how worthwhile Payroll Giving’s been over the years. It’s by no means perfect.
Issues have included the fact that when an employee changes organisations, their donations will only continue if their next employer offers payroll giving and the employee would have to sign up once again. And some people prefer to set up regular giving via direct debit.
But we’d still argue the positives outweigh the negatives. From the charities’ perspective, there are obvious reasons why it’s a good thing.
Over the years, Payroll Giving is estimated to have raised well over a billion pounds for the sector. It might not constitute a huge proportion of the total amount needed to run the various charities but it’s still a considerable sum.
Like a direct debit, it provides charities with regular income but Payroll Giving requires a lot less administration for the charity. If an alternative method of donation includes gift aid, the charity itself has to go through the process of reclaiming it.
With Payroll Giving the donation is taken from salaries before tax is deducted, so there’s no need to reclaim anything. The less administration required on the part of the charity, the more funds can be directed towards their core work.
Inspiring a culture of generosity
For an employee, Payroll Giving is an easy and cost-effective way to support a charity. So working for an organisation that helps facilitate it for them can be a real plus point.
At a practical level, the tax relief aspect means the donation costs the employee less (or lets them make a larger donation). And while employees are motivated by different things, for some of them having a simple way to regularly support a charity is something to be valued.
Research suggests givers get a great deal of benefit from altruistic behaviours. The act of giving is linked to happiness and can benefit health and wellbeing too so it makes sense to incorporate processes that support it.
Contributing to your corporate social responsibility
Yes, it requires some effort on the part of your business (although less if you’ve outsourced your payroll) but it’s not particularly onerous.
Virtually every business nowadays appreciates the importance of corporate social responsibility. By signing up to Payroll Giving, you’re already lifting some of the administrative burdens off charities. You can visibly demonstrate your support of the Payroll Giving scheme with the Quality Mark Award, enhancing your reputation in both your employees’ and customers’ eyes.
If you’d like an even more active way of supporting charities on top of facilitating Payroll Giving, you could consider match funding the donations made. Or you could use it as an opportunity to partner with certain charities, offering support by doing additional fundraising events and giving employee engagement a boost while you’re at it. The whole act of offering Payroll Giving to your employees says something really positive about your business. While it’s up to employees whether they decide to get involved, we think it continues to be a scheme that has a lot to offer.