Payroll giving – busting the myths
Helen Hargreaves, CIPP’s Senior policy and research officer, looks at whether there is any truth to the myths and explains what is actually involved when running a scheme and how to achieve success
P
ayroll giving is available to employees on pay as you earn
(PAYE) if their employers offer a scheme. Donations are made direct from salary/ wages before tax, and the tax relief is given to the donor so reducing the cost of the donation. As an example, a donation of £10 a month costs a basic rate taxpayer only £8 because they save £2 tax. For a higher rate taxpayer the cost is only £6 because they save £4 tax. Payroll giving became tax effective in
1987. Since then, it has grown steadily but has never reached the success of payroll giving in the USA, where it accounts for the highest yielding and lowest cost form of fundraising. The UK still has a long way to go before it achieves that kind of success. According to research by the Charities
Aid Foundation and National Council for Voluntary Organisations, 55% of adults in the UK give to charity in a typical month. So, why is it that despite offering the highest tax incentives and being a safe and easy method of donating, only 2% of employers offer a payroll giving scheme and payroll giving accounts for only 3% of all charitable donations?
Chart 1
Common reasons There are several reasons commonly given by employers for why they do not have a payroll giving scheme in place. They say running a scheme: l is difficult l takes too much time to administer l costs too much to run, and l employees are not interested. Research undertaken by the CIPP in conjunction with Workplace Giving UK, suggests that two of the main reasons why employers do not offer payroll giving to their staff are because of the administration process and the perceived cost of running the scheme. (See Chart 1.)
Myths – difficulty and time- consuming Yet the reality uncovered by the research shows that the majority of employers who already run a scheme say that payroll giving schemes are easy to implement and administer with an overwhelming 96% of employers saying that they found the administration easy and over 65% saying that the administration takes less than thirty minutes each month. (See Chart 2.)
Virtually all payroll software can make deductions for payroll giving, and most of the administration is dealt with by the payroll giving agency. In a nutshell, the employee asks the employer to deduct regular charitable donations from their pay. The deduction is calculated after national insurance contributions but before deducting PAYE tax. The employer then pays over all the money deducted to a HMRC-approved payroll giving agency, and they do the rest – distributing the money to the charities nominated by the employees. A list of approved payroll giving agencies can be found on HMRC’s website.
Employers will need to keep: a copy of their contract with the payroll giving agency; the forms completed by employees authorising them to make deductions from their pay; a record of the deductions made from each employee’s pay; and receipts from the payroll giving agency.
So, those are the first myths busted; it is not difficult and it is not time-consuming.
Myth – employee reluctance The next myth is that employees will simply not join in. It is understandable if employers feel their staff will not be interested in a payroll giving scheme whilst so many of us are still struggling with the effects of the recession. Surprisingly, however, the recession has not had as devastating an impact on charitable giving as some might think which is largely down to individuals reducing the amount they give rather than stopping donating altogether. In 2007/08, individual giving in the UK reached a peak of £10.6 billion, with the median donation being £11 per month. In 2011/12 the estimated total amount donated to charity was £9.3 billion and the median donation per month was £10. A drop yes, but that is still a lot of charitable giving. Added to this, in the CIPP research 53% of those who already operated a payroll giving scheme said they did so because their employees had requested it.
24 PayrollProfessional
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