Sales incentives for employees – how do companies do it?

[scu_be_doo]

Many of our competitors give away holidays, watches, electronic products, etc to their top performing sales staff. I’d like to start a similar scheme for our people.

Sales staff at other companies tell me they don’t pay any extra tax on these incentives. Is this possible?

Can you put this sort of thing through the books in some way that it doesn’t incur any tax for the staff?

And can you reclaim the VAT?

Any advice would be much appreciated.

[Fidgits]

all the sales guys I know would much rather have the cash than a rolex or a holiday

HTH

[scu_be_doo]

Fidgits said:

all the sales guys I know would much rather have the cash than a rolex or a holiday

HTH

They get a very competitive commission structure as well. We have 21 year olds taking home £4K+ p/m.

This is really because our competitors do the same thing and it works for them. In the type of sales environment we run (average age about 22-23, fairly high pressure, big ties, very status driven individuals) they would be incentivised by flashy watches, skiing holidays, etc.

[KingRichard]

scu_be_doo said:

Fidgits said:

all the sales guys I know would much rather have the cash than a rolex or a holiday

HTH

They get a very competitive commission structure as well. We have 21 year olds taking home £4K+ p/m.

This is really because our competitors do the same thing and it works for them. In the type of sales environment we run (average age about 22-23, fairly high pressure, big ties, very status driven individuals) they would be incentivised by flashy watches, skiing holidays, etc.

So a bunch of mobile phone salesmen then?

I see someone with a big tie knot and immediately thing 'warra cock'. When they undo their jacket they've got about 3" of tie showing

Anyway... back to your question. Ahem.

Way back when I was in recruitment, we used to have a tiered commission structure. Basically, you would have several monthly billing thresholds. If you didn't hit the first one, you got bugger all and you deserved it because frankly, being a salesperson and not selling anything is pretty fking useless!

So, once you broke that first threshold (only a few grand), you would be on 20% of the total billings for that month. When you reached another threshold (£20k) you would get 40% on anything over the threshold, plus your £4k for the £20k worth of sales.

When you're placing £30k candidates on a 30% fee (£9k) you don't have to work particularly hard to earn bloody good money. We were offered 40% flat with no basic just before I left, and I took it but I'd already made the decision to start on my own.

Having been part of a young, motivated team I'd say the cash means more than some stty £300 ski holiday. Cars are worth giving though, but set high targets and give a real reward for it. Don't incentivise to get a Golf+ just because you can get a cheap leasing deal. Get some mercs, boxsters and stuff on the list

But concentrate on dishing the cash

[scu_be_doo]

KingRichard said:

So a bunch of mobile phone salesmen then?

I see someone with a big tie knot and immediately think 'warra cock'.

So do I, but as long as they are generating income they can wear pyjamas if they want to.

Thanks for the advice on the types of incentive though.

What really need to know is how companies put these incentives through the books in some way that it doesn’t incur any tax for the staff? And if the VAT is reclaimable?

Thanks,

Scu_be_doo

Edited by scu_be_doo on Monday 25th February 11:59

[KingRichard]

scu_be_doo said:

KingRichard said:

So a bunch of mobile phone salesmen then?

I see someone with a big tie knot and immediately think 'warra cock'.

So do I, but as long as they are generating income they can wear pyjamas if they want to.

Thanks for the advice on the types of incentive though.

What really need to know is how companies put these incentives through the books in some way that it doesn’t incur any tax for the staff? And if the VAT is reclaimable?

Thanks,

Scu_be_doo

Edited by scu_be_doo on Monday 25th February 11:59

Yeah I think it counts as a benefit in kind, in the same way as a company car for private use, personal fuel etc. I'm sure you have to declare it as an employee.

Far better would be to offer directorships to your top performers (just have loads of sales directors) that then have the option to recieve a dividend instead of a PAYE salary. That way they are only taxed 20% instead of 40%.

Not sure how that would stack up in real life, but may be worth investigating

[HiRich]

scu_be_doo said:

Many of our competitors give away holidays, watches, electronic products, etc to their top performing sales staff. I’d like to start a similar scheme for our people.

Sales staff at other companies tell me they don’t pay any extra tax on these incentives. Is this possible?

Can you put this sort of thing through the books in some way that it doesn’t incur any tax for the staff?

And can you reclaim the VAT?

Any advice would be much appreciated.

It's a while since I constructed a sales incentive scheme, but you're right to be very wary. I'd get your accountant to check it carefully, and there is almost certainly a set of HMRC guidelines. From my (quite possibly fallible) memory:

• Employees are liable for income tax on their rewards. You must inform them of this and provide them with the taxable value
• You may be able to set the taxable value at the purchased (perhaps wholesale) price, rather than high street price. On some items the difference can be significant. There may be a minimum declarable threshold, to save them calculating the tax on a bunch of bananas. You may also be able to "cover" the recipients gift by also paying the tax at source.
• I'm not sure of any effect on National Insurance.
• You should be able to reclaim the VAT.
• You cannot run a prize draw/tombola ("one of the top five salesman will win a trip to Tahiti&quot. Even though you are already paying them, their effort can be construed as buying entry.

There are several options: competition (best wins), collector (build points and trade them in), threshold (iPod when you reach £10k sales, car when you reach £1m). There are incentive companies that can offer you a near-turnkey package. You'll need to decide which is right for your organization - size, timeframe, reward achievibility, etc.

One often overlooked option, especially over the longer term, can be the ad hoc reward. If someone does something special (exceptional sales for their area, or a new system implemented in the finance department), they get a suitable gift (e.g. case of wine) It can include everyone from sales to teaboy, does not require strict rules (not just sales targets, but quality of service), and can create some hoopla to inspire everyone

[derestrictor]

scu_be_doo said:

We have 21 year olds taking home £4K+ p/m.

As long as they don't start their cold call (to my mobile) with "how are you today?"

At which point their 4k is measured in drachma.

[m3sye]

[/quote]

They get a very competitive commission structure as well. We have 21 year olds taking home £4K+ p/m.


[/quote]

Whats the industry ?

[flyingjase]

We offer our employees a number of valuable incentives (holidays, days out, weekends away etc) and they are treated as a benefit in kind, hence either you as a business or the employee has to pay the PAYE. If you pass it onto the employee, then it ceases to become an incentive (in my opinion)

You can set up a thing called a PSA with HMRC to make the admin side easier, but just remember to add back the tax & NI when budgeting the cost of the incentive.

Anyone who says it's tax deductable is well out of date!

We gave our top guy an Aston Martin V8 Vantage this year - ouch in the tax I can tell you!

[scu_be_doo]

Thanks for the input everybody, espcially HiRich and flyingjase. I will have a chat with our accountant about PSA's and HRMC.

[Greenie]

derestrictor said:

scu_be_doo said:

We have 21 year olds taking home £4K+ p/m.

As long as they don't start their cold call (to my mobile) with "how are you today?"

At which point their 4k is measured in drachma.

Why do they do that? Get to the point quick because I know you don't care how I am!

"how are you today?" = no sale every time.

And Der can you email me contact for your sales team as I haven't received a reply from an query sent at the weekend.

[dr matt uk]

hmmm , I'm certainly not an expert, but I do recall that when we have offered the sales staff incentives, we as a company have had to sort the tax out and declare the liability on their behalf, so that the sales staff can enjoy their incentive without having to declare it to Gordon as a BIC.