A staff suggestion scheme can reward employees for ideas that improve the business. Some awards can be exempt from tax and National Insurance, but only within the scheme’s conditions and limits.
Put a scheme in place
The scheme should be formally established and open to all employees or an eligible group. Awards should not simply replace contractual pay.
The suggestion needs to fall outside the employee’s normal duties. An idea produced as part of the work someone is already paid to do may not qualify for the exemption.
The circumstances in which suggestions are invited also matter. Check the conditions before treating a payment as tax-free.
Distinguish the award types
An encouragement award recognises a suggestion even where it is not implemented. A financial-benefit award depends on an adopted suggestion and the financial improvement reasonably expected from it.
Different limits and calculations apply. Use the GOV.UK suggestion-scheme guidance for the current amounts and treatment of any excess.
Keep supporting records
Retain the scheme rules, the suggestion, the employee’s usual responsibilities and the basis for the award. Where the award reflects expected savings or improved efficiency, record how those benefits were estimated.
We can help check the proposed rules and payroll treatment before awards are made.