Payroll Giving – also known as Give As You Earn (GAYE) – has been around for some time now but a sizeable proportion of UK employers still haven’t heard of it. Of those that have, many don’t get involved simply due to a lack of understanding about the scheme, or not having time.
But with social awareness and responsibility higher now than ever before, particularly amongst younger groups, it’s a great opportunity that employers won’t want to miss. If you’re an employer looking to set up Payroll Giving, or have been asked to do so, then this guide is for you.
What is Payroll Giving?
Lots of people enjoy giving to charity, and Payroll Giving is an excellent way to do it. It’s essentially a scheme that allows your employees to give to any UK charity directly from their gross salary, attracting immediate tax relief.
As charities are not subject to claiming Gift Aid, there’s less of an administrative burden on them. It also means they can forecast budgets on the basis of the regular donations they’ll receive.
Any member of staff who pays tax through Pay As You Earn (PAYE) can make charitable donations through Payroll Giving. There aren’t any limits on the size of the gift, either.
What are the benefits of Payroll Giving for employers?
Charities obviously benefit financially from Payroll Giving, but there are many benefits to the employer, too. They include:
#1 – Putting the organisation in a good light (great PR!)
Donating to charity is an altruistic thing to do, first and foremost. But it also shows your organisation’s commitment to supporting good causes, whilst demonstrating to stakeholders that you and your employees care.
#2 – Helping to meet the company’s objectives around corporate responsibility
Payroll Giving is another way to boost existing corporate social responsibility (CSR) activity. It’s a great way to meet wider CSR objectives and drive employee engagement.
#3 – Achieving external recognition
Your business will gain recognition for charitable contributions by taking part in a Payroll Giving scheme. This is through government-recognised quality marks which go towards to making your organisation a preferred employer.
#4 – It’s easy to administer
There’s no need to have a dedicated person within your payroll team to administer your scheme. It’s all done online with user-friendly support on hand.
#5 – Helping you understand your employees a little better
The kind of charities that are close to your employees’ hearts might well be surprising! Not only is this a chance to get to know them better, it also builds a more driven and engaged workforce.
What are the benefits for charities?
The real beauty of Payroll Giving for charities is that it provides them with reliable, regular income. There’s less guesswork, meaning they can better plan their income and projects.
How can we boost engagement around Payroll Giving with our employees?
When it comes to Payroll Giving, there are many ways you can encourage staff to take part (if they’re not already beating down the door). Many employers offer to match whatever their employees donate, which can be a great motivator (more on this later).
Some employers also opt to work with a Professional Fundraising Organisation (PFO) which specialises in face-to-face engagement with employees. This can supercharge your promotional campaigns and really get people signing up.
What are the tax implications for employees?
As mentioned, Payroll Giving is deducted from an employee’s salary before tax, but after National Insurance deductions. This means that tax relief is given on donations made, which can then be passed onto the charity. And of course, the benefits increase most in higher rate taxpayers.
Payroll Giving and basic rate taxpayers
Employees who pay tax at the basic rate pay 20p in tax for every £1 they earn. However, if they sign up to a Payroll Giving scheme and pledge (for example) £10 a month, the charity receives the full amount, but only £8 is taken from their net pay.
And for higher rate taxpayers?
If someone subject to the 40% higher rate of tax pledges £10 a month, only £6 will be taken from their net pay.
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 through either Self Assessment or through your tax code.
There are a good number of accredited, trustworthy Payroll Giving providers out there and each one offers something different. Typically, there are three ways for employees to give through their pay.
#1 – Direct to charity
An employee will sign up online, decide which charity (or charities) they wish to support and then make their donation directly.
#2 – Charity account
The donation is deducted as we’ve already described, but it gets sent to an employee’s own personal account. They can access this account themselves and make extra donations if they want to.
They can either donate on an ad-hoc basis, set up a standing order, support a specific appeal, or set up a sponsorship.
#3 – Staff charity fund
Employees’ donations made via Payroll Giving are pooled, allowing your teams to make a bigger donation to one or more charities of their choosing.
Sounds great! How do I sign my company up?
If you decide to sign your company up to Payroll Giving, there are a few steps you’ll need to take.
Step one: Get key people on board
You’ll need the backing of senior management, HR, and payroll in particular. Extol the virtues of Payroll Giving and its benefits!
Step two: Sign up with a Payroll Giving agency
You may have done this already but if not, now is the time to sign up with a PGA. They will facilitate your Payroll Giving, helping to distribute the donations your staff make.
PGAs aren’t optional – they’re essential.
This is because donations are made through gross pay, so HMRC require an audit trail to make sure money is going to the right places.
Step three: Promote the scheme to staff
Your staff may well have never heard of Payroll Giving, or the benefits to both themselves and charities. Get promoting! Hold a seminar, send round an ‘all staff’ email or hold a Payroll Giving fundraising event. Anything to raise their enthusiasm and get it off the ground.
Step four: Get your employees signed up
Employees can sign up to Payroll Giving through a Payroll Giving Agency, or with a Professional Fundraising Organisation (we’ll talk more about PFOs in a minute).
Step five: Let the donating begin!
Now your Payroll Giving scheme is in place and your staff are signing up, you’re ready to go.
How do I choose a Payroll Giving Agency?
There are quite a few to choose from but they must have HMRC approval and appear on the government’s list of agencies. You’ll usually find their registration agreement form on their website, or they’ll send one for you to fill in.
What role will my finance department take?
There’s very little effort involved for your finance team or accountant when dealing with Payroll Giving, but they will play an integral part. The brilliant thing is that the vast majority of modern payroll systems can easily implement Payroll Giving using a simple ‘tick box’ option.
Once an employee signs up, your payroll operator just needs to deduct their donation every payday, whether monthly or weekly. (If you’re a client of ours, remember to tell us!)
The sum total of employees’ donations are then sent to your PGA. PGAs are contactable if your payroll person needs any help with anything.
How do the charities receive the funds from the PGAs?
Once your payroll department submits the funds to your PGA, they’ll transfer donations to your chosen charity (or charities). A small fee is taken from each donation to cover administration costs.
Generally, this is about 4% of the entire amount, which is a tiny proportion when you consider how much HMRC would otherwise take in tax.
Employees who join the scheme will see donations as a deduction on their wage slip. Your PGA will usually also help you keep track of all your employees’ donations by providing regular reports too.
How much will the scheme cost to set up?
There’s no specific cost to set up a Payroll Giving scheme, other than staff time.
How else can I promote Payroll Giving in my organisation?
We already know that employee engagement is crucial here. But looking a little more at some ideas, you could:
Offer to match donations or set up a prize draw
Plan an event that gets your teams together, with the theme of charitable donations and Payroll Giving
Aim for a Gold Quality Mark, if 10% of your employees sign up
You could also engage the help of a Professional Fundraising Organisation (we touched on this earlier).
What is a PFO?
Basically, Professional Fundraising Organisations (PFOs) are experienced fundraisers which work with companies and charities in promoting Payroll Giving to employees.
These organisations can make a huge difference to employee participation, offering lots of different services, promotional ideas, and support.
What is matched giving?
Matching donations is a great way of encouraging employees to sign up to Payroll Giving. Employers will basically match the amount their employees donate each month, which can act as a fantastic incentive. It can certainly make their donations go a lot further!
What’s the difference between Gift Aid and payroll giving?
Donations made through Gift Aid mean charities can claim an additional 25 pence for every £1 UK taxpayers give, at no extra cost.
Payroll Giving makes this process really simple, because the charity receives donations straight from an employee’s salary before tax. The funding the charity receives includes the tax relief, meaning they don’t need to claim back Gift Aid.
Whether you’re a small business or a massive one, Payroll Giving is a great chance to pitch yourself as a socially responsible, forward-thinking employer. It means you can support your teams in what matters to them, and of course, help support charities, giving something back to society.
How flexible is Payroll Giving for my employees?
Very flexible indeed. Not only can employees choose the charity or charities they wish to support, they can also choose the amount too. If they decide to take a break from donating (after all, anyone’s financial circumstances can change), they can leave and re-join the scheme whenever they want to. Employees just need to let payroll know.
How can I get a Payroll Giving Award?
Payroll Giving Awards are awarded to the companies that run the most regular promotions, maintain awareness, and get really stuck in to recruiting new donors. For more information visit www.payrollgivingawards.co.uk.
Once you start, don’t forget to update your staff regularly
Whoever your team supports, many charities are only too happy to provide newsletters, case studies and updates on how donations are spent. Make sure you circulate these amongst your staff, so they know they really are making a difference.