Payroll Giving, also known as Give As You Earn (GAYE), has been available for a while now. However, many UK employers are still unaware of it. Even among those who have heard of it, some do not participate due to a lack of understanding or time constraints.
In today’s socially conscious climate, especially among younger demographics, Payroll Giving presents a valuable opportunity that employers should not overlook. This guide is designed for employers interested in implementing Payroll Giving or those who have been asked to do so.
What is Payroll Giving?
Payroll Giving is an excellent way for people to contribute to charities. It’s essentially a program that enables your employees to make donations to any UK charity directly from their pre-tax salary. This results in immediate tax relief for them.
Because charities do not have to go through the process of claiming Gift Aid, it reduces their administrative workload. Moreover, it allows them to anticipate their budgets based on the regular donations they will receive.
Any staff member who pays income tax through the Pay As You Earn (PAYE) system can participate in Payroll Giving, and there are no restrictions on the donation amount.
Benefits of Payroll Giving for Employers
- Positive Public Image (Excellent PR): Donating to charity is a noble gesture, showcasing your organization’s commitment to supporting good causes. It also signals to stakeholders that you and your employees are socially responsible.
- Enhancing Corporate Responsibility: Payroll Giving complements existing corporate social responsibility (CSR) initiatives, aligning with broader CSR goals and fostering employee engagement.
- External Recognition: Participating in a Payroll Giving program earns your business recognition for its charitable contributions. This recognition comes through government-endorsed quality marks, enhancing your organization’s reputation as a preferred employer.
- Simplified Administration: Administering a Payroll Giving scheme is hassle-free. It doesn’t require a dedicated person within your payroll team. Everything is managed online with accessible support available.
- Better Employee Insight: Discovering the charities that matter most to your employees can be eye-opening. This not only strengthens your connection with them but also cultivates a motivated and engaged workforce.
What Benefits Do Charities Get from Payroll Giving?
Payroll Giving is a true asset for charities because it provides them with steady and predictable income. This reliability allows charities to plan their finances and projects with greater confidence.
How Can We Encourage Employee Engagement in Payroll Giving?
When it comes to encouraging employees to participate in Payroll Giving, there are several effective strategies. Many employers choose to match their employees’ donations, which serves as a powerful motivator (more on this below).
Some employers also collaborate with Professional Fundraising Organizations (PFOs) that specialize in engaging employees face-to-face. This partnership can significantly boost your promotional efforts and encourage more people to sign up.
What Are the Tax Implications for Employees?
As previously mentioned, Payroll Giving involves deducting donations from an employee’s salary before calculating income tax but after National Insurance deductions. This means that tax relief is applied to the donations, benefiting the charity. The greatest advantages are realized by higher rate taxpayers.
Payroll Giving and Basic Rate Taxpayers:
- Employees who pay tax at the basic rate contribute 20p in tax for every £1 they earn. However, if they enroll in a Payroll Giving scheme and commit, for instance, £10 per month, the charity receives the entire amount, while only £8 is deducted from their take-home pay.
For Higher Rate Taxpayers:
- If someone falls under the 40% higher rate of tax and pledges £10 monthly, only £6 will be deducted from their net pay.
Donating with Gift Aid and Higher Rate Taxpayers:
- If you or your employees donate with Gift Aid and pay tax above the basic rate, it’s possible to claim the difference between the rate paid and the basic rate on the donation. This can be done through either Self Assessment or by adjusting your tax code.
How Does Donating through Payroll Giving Work in Practice?
Donating through Payroll Giving is straightforward, and there are several reputable providers available, each offering unique features. Typically, employees can choose from three methods to make their donations through their pay.
1. Direct to Charity
In this option, employees sign up online, select the charity (or charities) they want to support, and make their donations directly.
2. Charity Account
With this approach, donations are deducted from the employee’s pay as previously explained, but the funds are sent to the employee’s personal charity account. Employees have control over this account and can make additional donations if they wish. They can choose to donate on an occasional basis, set up a regular standing order, support a specific appeal, or even establish sponsorships.
3. Staff Charity Fund
When employees opt for Payroll Giving, their donations are collected and pooled together. This pooling allows your teams to make more substantial contributions to one or multiple charities of their choice.
How Can My Company Sign Up for Payroll Giving?
To enroll your company in Payroll Giving, you’ll need to follow a few key steps.
Step One: Gain Support from Key People
You’ll need the support of senior management, as well as key personnel in HR and payroll departments. It’s important to highlight the advantages of Payroll Giving and the benefits it brings.
Step Two: Partner with a Payroll Giving Agency
If you haven’t already, this is the time to collaborate with a Payroll Giving agency (PGA). The PGA will facilitate your Payroll Giving program, ensuring that the donations from your staff are distributed to the chosen charities effectively.
This requirement exists because donations are deducted from gross pay, which means the HMRC (Her Majesty’s Revenue and Customs) needs a clear audit trail to ensure that the money is directed to the intended charitable recipients.
Promote the scheme to your employees It’s likely that many of your staff members are unfamiliar with Payroll Giving and its advantages for both themselves and charities. Start promoting it! Consider organizing a seminar, sending an email to all staff, or hosting a Payroll Giving fundraising event. These initiatives can boost their enthusiasm and kick-start the program.
Help your employees sign up Employees can enroll in Payroll Giving through a Payroll Giving Agency or with the assistance of a Professional Fundraising Organisation (PFO), which we’ll discuss further shortly.
Commence the donations! Once your Payroll Giving scheme is established and your staff members are signing up, you’re all set to begin the charitable contributions.
How to Select a Payroll Giving Agency?
There are several options available, but it’s essential to choose a Payroll Giving Agency (PGA) that has received approval from HMRC and is listed on the government’s approved agencies list. You can usually find their registration agreement form on their website, or they will provide one for you to complete.
What Role Will My Finance Department Play?
Your finance team or accountant will have minimal involvement when it comes to Payroll Giving, but their role is crucial. The good news is that most modern payroll systems offer an easy “tick box” option to implement Payroll Giving seamlessly.
Once an employee enrolls, your payroll operator simply deducts their donation from each payday, whether it’s monthly or weekly. (Don’t forget to inform us if you’re our client!)
The total sum of employees’ donations is then forwarded to your chosen PGA. If your payroll person needs assistance, PGAs are accessible and can provide support if required.
How Do Charities Receive Funds from PGAs?
Once your payroll department transfers the funds to your chosen PGA, they will facilitate the transfer of donations to the selected charity or charities. A small fee, typically around 4% of the total amount, is deducted from each donation to cover administration costs. This fee is relatively small, especially when compared to the amount that HMRC would otherwise collect in tax.
Employees participating in the scheme will see their donations reflected as a deduction on their wage slip. Additionally, your PGA will likely provide regular reports to help you keep track of all employee donations.
What Is the Cost of Setting Up the Scheme? There is no specific cost associated with setting up a Payroll Giving scheme, apart from the time and effort of your staff.
How Can I Promote Payroll Giving in My Organization?
Employee engagement is crucial, and you can consider various strategies, such as:
- Matching Donations: Offer to match your employees’ donations or set up a prize draw to incentivize participation.
- Organize Events: Plan events that bring your teams together with a focus on charitable donations and Payroll Giving.
- Aim for Recognition: Strive for a Gold Quality Mark, which is achieved when 10% of your employees sign up for Payroll Giving.
You can also engage the help of a Professional Fundraising Organisation (PFO), as mentioned earlier.
What Is a Professional Fundraising Organisation (PFO)?
Professional Fundraising Organisations (PFOs) are experienced fundraisers that collaborate with companies and charities to promote Payroll Giving to employees. These organizations provide various services, promotional ideas, and support, significantly boosting employee participation.
What Is Matched Giving?
Matched giving involves employers matching the amount their employees donate each month to encourage participation. It acts as a fantastic incentive, making employees’ donations go further.
What’s the Difference Between Gift Aid and Payroll Giving?
Donations made through Gift Aid enable charities to claim an additional 25 pence for every £1 given by UK taxpayers at no extra cost. Payroll Giving simplifies this process because the charity directly receives donations from an employee’s salary before tax. The funding received by the charity already includes the tax relief, eliminating the need to claim back Gift Aid.
Is Payroll Giving Flexible for My Employees?
Yes, Payroll Giving is highly flexible. Employees have the freedom to choose the charity or charities they want to support and the donation amount. If they decide to pause their donations due to changing financial circumstances, they can leave and rejoin the scheme whenever they wish; they just need to inform payroll.
How Can I Earn a Payroll Giving Award?
Payroll Giving Awards are presented to companies that actively promote the scheme, maintain awareness, and consistently recruit new donors. For more information, visit www.payrollgivingawards.co.uk.
Once You Begin, Keep Your Staff Informed
Many charities are happy to provide newsletters, case studies, and updates on how donations are utilized. It’s essential to circulate this information among your staff, so they understand the impact of their contributions.