NI Cost Neutrality Scenarios in GB Flexible Benefits

You administer a No Additional Funding Schemein GB FlexBens and have implemented NI Cost Neutrality. The Class 1A NI contribution rate is 12.8% for the current benefits year. To calculate the cost (in days) of holiday buying/selling for your participating employees, you divide the pre-flex salary by the number of annual working days to calculate the cost of one days holiday.

The following examples illustrate how NI neutrality processing is handled in GB FlexBens, using two separate employee scenarios within your organisation.

Scenario 1: Employee Over-spending

A male employee receives a basic pre-flex salaryof GBP60,000 and is entitled to 20 days annual holiday under the standard benefitsoption you provide. He buys five extra days holiday, resulting in GBP85.24 per month being deducted from his post-flex salary.

The following calculations are made by the GB FlexBens system to produce this monthly deduction of GBP85.24:

Pre-Flex Salary	GBP 60,000
Standard Option	20 Days Entitlement
Pre-Enrollment Holiday Value for 20 days	60,000 / 260 * 20 / 12 = GBP384.62 per Month
Post- Enrollment Holiday Value for 25 days	60,000 / 260 * 25 / 12 = GBP480.77 per Month
Value of Adjustment before Neutrality Applied	GBP – 96.15
Value of NI Cost Neutrality	96.15 – [96.15 / (1 + 12.8%)] = GBP 10.91
Cost to Employee of Buying Five Days	– 96.15 + 10.91 = - GBP – 85.24

In this first scenario, the employee selected five more days holiday than offered in the standard benefits package. Normally, GBP 96.15 would be deducted from his post-flex salary to pay for these extra days. However, you have implemented NI Cost Neutrality for this plan.

Because the employee’s salary has been reduced in this scenario, your organisation incurs less employer NICs, to the value of GBP10.91. Therefore, GBP 10.91 is refunded to the employee, and only GBP 85.24 is deducted from his post-flex salary.

Scenario 2: Employee Under-spending

An female employee receives a basic pre-flex salary of GBP70,000 and is entitled to 25 days annual holiday under the standard benefits option you provide. She sells five days holiday, resulting in GBP99.45 per month being added to her post-flex salary.

The following calculations are made by the GB FlexBens system to produce this addition of GBP99.45 per month:

Pre-Flex Salary	GBP 70,000
Standard Option	25 days entitlement
Pre-Enrollment Holiday Value for 25 days	70,000 / 260 * 25 / 12 = GBP 560.90 per Month
Post- Enrollment Holiday Value for 20 days	70,000 / 260 * 20 / 12 = GBP 448.72 per Month
Value of Adjustment before Neutrality applied	GBP 112.18
Value of NI Cost Neutrality	112.18 – [112.18 / (1 + 12.8%)] = GBP 12.73
Refund to Employee for Selling Five Days	112.18 - 12.73 = GBP 99.45

In this second scenario, the employee decides to sell 5 of her 25 days standard holiday allocation. Normally, GBP112.18 would be added to her post-flex salary in return for the holiday days she sells. However, you have implemented NI Cost Neutrality for this plan.

Because the employee’s salary has been increased in this scenario, your organisation incurs more employer NICs, to the value of GBP12.73. Therefore, GBP 12.73 is deducted from the employee to maintain NI neutrality in this scenario, and only GBP 99.45 is added to her post-flex salary.