The benefits of employee benefits

Hannah Shimko, managing director of the Gift Card and Voucher Association (GCVA), sets out why flexibility and personalisation are key elements of employee benefits schemes in the public sector.

The public sector in the UK faces a unique set of challenges when it comes to recruiting and retaining talent. Unlike the private sector, where salaries can be more competitive, the public sector has traditionally struggled to match salaries directly. Despite recent pay awards designed to ‘level up’ after a prolonged period of pay restraint, the disparity between public and private sector pay scales is likely to persist. 

However, money isn’t everything. For many years, the narrative around public sector employment has centred on the idea of job security, meaningful work, and a sense of duty to the community. These are powerful motivators, especially for those drawn to the public sector’s mission-driven roles.

But in an era where financial pressures are mounting, and the cost of living continues to rise, these non-monetary advantages need to be complemented with tangible, practical benefits that address the immediate concerns of workers. 

The public sector has a distinct opportunity to attract and retain employees by offering a robust and diverse range of employee benefits, which can be just as compelling as higher salaries.

This is particularly true in the context of younger employees, who are facing financial challenges that previous generations may not have encountered to the same degree. For instance, many younger workers struggle to get on the housing ladder, a challenge that is exacerbated by stagnant wages and rising property prices. Addressing these challenges through targeted benefits, can be an effective way to support younger employees. 

But it’s not just younger workers who are feeling the pinch. The cost-of-living crisis has impacted workers of all ages, with rising food and energy bills becoming a significant concern. In this environment, providing tangible, practical support through employee benefits can significantly enhance an employer’s appeal. 

Employees are looking for more than just a pay cheque – they want to know that their employer is on their side, helping them navigate these challenging times. This is where the power of targeted employee benefits, such as gift cards, comes into play.

Gift cards have emerged as a powerful tool in the public sector’s employee benefit arsenal. Their flexibility is one of their greatest strengths, making them suitable for a wide range of purposes. 

The popularity of gift cards as an employee benefit has seen a significant rise, particularly in response to recent economic challenges. According to our own State of the Nation
report, published in March 2024, there was a notable increase in the use of gift cards as an employee benefit during the final quarter of 2023. Employers, keen to reward their
staff after what had been an exceptionally difficult year, turned to gift cards as a practical and appreciated form of recognition. The proportion of gift card purchases for this purpose rose to 21.2 per cent in Q4, up from 17.8 per cent the previous year.

The Welsh government’s new employee benefits framework, launched earlier this year, includes gift cards as a core component of its strategy to support and reward employees. Alongside a wide range of supports and incentives, the framework offers reward and recognition benefits such as gift cards, vouchers, gift experiences, long-service awards, and recognition messages.

This comprehensive approach reflects the growing popularity of experiential rewards and the focus on holistic well-being in modern employee benefit schemes. The inclusion of gift cards in this framework highlights their value as a flexible, versatile benefit that can be tailored to meet the needs of a diverse workforce.

Empowering employees with 

tailored and personalised benefits

Gift cards can be tailored to individual preferences, offering a variety of options from dining experiences and wellness treatments to educational courses and essential retail items. More importantly, they can be used to address specific needs, such as accessing wellbeing services that promote employee mental health. Gift cards can also help offset critical expenses, such as transportation costs, or to cover childcare costs, ensuring peace of mind for working parents.

Moreover, gift cards can be particularly valuable during difficult financial times. For instance, during the cost-of-living crisis, gift cards were used as a benefit to help employees cover essential expenses such as grocery or energy bills, providing them with real, immediate support.

The appeal of gift cards lies not only in their flexibility but also in their ability to empower employees by giving them control over their rewards. Unlike traditional benefits, which may be one-size-fits-all, gift cards allow employees to choose how they want to use their benefits, making the experience more personal and meaningful. This sense of control and personalisation is particularly important in today’s work environment, where employees are increasingly seeking benefits that reflect their individual needs and preferences.

Research supports the effectiveness of gift cards in motivating and retaining employees. The 2022 UK Prepaid Consumer Survey, published by fintech company Fiserv, found that a third of employees reported being more productive when offered such incentives and rewards.

Moreover, 31 per cent of employees stated that regular rewards, such as gift cards, would motivate them to stay with a particular employer. 

This data underscores the importance of incorporating gift cards into employee benefit schemes, especially in the public sector, where other forms of compensation may be less competitive.

Tax advantages of gift cards as benefits

Using gift cards as employee benefits offers not only flexibility and personalisation but also significant tax advantages, making them an attractive option for public sector employers.

Under HMRC’s Trivial Benefits rules, employers can provide tax-free gifts to employees up to a value of £50, as long as certain conditions are met. These gifts cannot be in the form of cash or cash vouchers, cannot be rewards for work or performance, and must not be included in the employee’s contract terms. When gift cards are used in compliance with these rules, they qualify for this tax exemption, allowing employers to reward their staff without additional tax liabilities.

For public sector organisations, which often operate under tight budget constraints, this tax efficiency is particularly valuable. By leveraging the Trivial Benefits scheme, public sector employers can offer meaningful rewards to their employees while minimising costs. This approach not only increases the overall value of the benefits package but also ensures that budget allocations are used effectively to support employee well-being and morale.

Dundee-based accountancy firm Ashton McGill is an example of how organisations can effectively use HMRC’s Trivial Benefits scheme. The firm adopted the scheme to provide tax-free gift cards to its employees, recognising the dual benefits of offering personalised rewards while taking advantage of the government’s tax relief. This strategy has allowed Ashton McGill to create a positive work environment without incurring extra tax burdens.

The Gift Card and Voucher Association (GCVA) has long advocated for increasing the value threshold of this tax-free benefit and expanding the Trivial Benefits scheme. In many other countries, similar tax-exempt benefits have higher thresholds, allowing for more substantial rewards to be provided to employees. Raising the limit in the UK would further enhance the appeal of gift cards as a key component of employee benefit schemes, especially in the public sector where budget considerations are crucial