· 4 min read · Features

Strategic Benefits: Taxing EAPs could blow a hole in employers' duty of care policies

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A resource that promotes employee resilience and helps organisations prevent and manage sickness absence hardly sounds like an employee benefit. But, earlier this year, that is how the Government said it proposed to reclassify employee assistance programmes (EAPs).

In March, a report from the independent Office of Tax Simplification (OTS) recommended tax relief relating to welfare counselling, 'often provided by employers as part of a general employee assistance programme', be abolished. This was followed by chancellor George Osborne welcoming OTS' recommendations in his 23 March Budget Statement and, while not directly referring to welfare counselling, confirming government plans to consider the other areas raised in the OTS report.

This raised concern and it seemed to imply that providing information and advice to employees around welfare issues - be that via a 24-hour phone helpline, the internet or face-to-face - amounts to rewarding or incentivising staff.

"We are disappointed the Government has chosen to classify EAPs as an employee benefit, rather than the strategic intervention that over 5,200 organisations in the UK have invested in," says David Smith, chairman of the industry body for EAPs, the UK Employee Assistance Professional Association (EAPA).

Among his objections is that the proposed change appears to contradict government advice and initiatives in other areas. "Health and safety legislation also requires employers to protect employees' health and manage risks, while Health and Safety Executive guidelines state that EAPs are recommended," he adds.

In its defence, the OTS based its recommendations on the views and evidence of taxpayers, advisers, HM Revenue and Customs, HM Treasury and other 'interested bodies'. In addition, the report states the longer-term aim is to align the treatment of employee benefits with shorter-term aims of simplifying many minor benefits.

Andrew Kinder, vice chair of UK EAPA and chief psychologist for Atos Healthcare, describes such aims as "laudable". However, he adds: "The question is whether EAPs have got caught up in this, without someone standing back and asking what the unintended consequences may be."

Others question the Government's timing. "At a time when public sector organisations in particular are going through huge organisational change as the result of austerity measures, it does seem perverse that the Government is proposing to tax one of the main support systems that help people cope," says Shane Lynch, head of HR, shared services, at Islington Council.

This year, Islington re-negotiated its EAP contract, reducing the cost of its programme from approximately £12 to under £4.50 per head, by approaching other London Councils, including Barnet, Camden, Richmond and Hammersmith & Fulham and buying in bulk.

Lynch underlines this relatively small investment more than pays for itself in terms of reducing sickness absence costs: "Our average salary is £30,000 per annum, so if the programme prevents just one employee being off sick for six months, then that saving more than pays for the cost of providing the scheme to the entire council," he says. But, he adds that, if the proposed change goes ahead: "We will need to consider whether it is financially viable to continue to provide the programme."

Others are concerned employers may be deterred by the additional administrative burden any change may create. "Some organisations may simply remove their EAP if they find that it costs more to administer than to actually purchase a programme," says Paul Roberts, strategic director of employee health and wellbeing consultants, IHC.

Meanwhile, there are worries those employers that choose to opt out of an EAP could expose themselves to compliance difficulties, hefty compensation payments and reputational risk.

"You only have to look at the stories plastered all over the newspapers involving major law practices, investment banks and harassment in the workplace, to see what the consequences could be," says Melvyn Measures, head of product at FirstAssist, part of the Capita Group.

But there are those that can see both sides. "I have experienced EAPs used both as an employee benefit - helping a particular individual cope with the impact of their personal life on their work life - and as a strategic intervention, for example, providing line managers with coaching on how to handle a difficult situation in the workplace," says Louise Travis, head of reward at financial services provider, LV=.

Nevertheless, she is worried that a change in tax status could negate the all-important confidential nature of EAPs, and thereby undermine employees' trust in accessing the service.

This view is echoed by Eugene Farrell, business manager at Axa Icas, who explains: "Research by the mental health charity Mind shows how scared people are to disclose mental health issues to their employer, but if EAPs are to be considered as a benefit, then for tax purposes, organisations are going to need to know which employees have access to their programme."

With the World Health Organisation estimating that mental health conditions cost British employers almost £26 billion a year through absence and 'sickness presence', and the NHS under increasing pressure, especially around 'talking' therapies, there is a growing onus on organisations to be more active in supporting employee's mental wellbeing.

As Mike Blake, compliance director of PMI health group, says: "The Government should be encouraging organisations to adopt EAPs with tax incentives, rather than making it harder."

Taxable or exempt?

Most employee assistance programmes (EAPs) are exempt from tax under welfare counselling regulations, as outlined in the Income Tax (Earnings and Pensions) Act 2003.

According to HM Revenue and Customs (HMRC), the type of subjects the exemption is intended to cover include: stress, problems at work, debt, alcohol and other drug dependency, career concerns, bereavement, equal opportunities, ill-health, sexual abuse, harassment and bullying, conduct and discipline and personal relationship difficulties.

However, medical treatment, financial (other than debt-related), tax, leisure or recreation and legal advice are not covered by the exemption. There are also restrictions around welfare counselling for employees' dependents and family members.

As yet, it is not clear if, when or how the removal of tax exemption on EAPs will take effect. However, in its Review of tax reliefs in March, the Office of Tax Simplification stated 'consideration could be given to replacing it [tax relief] with a de minimis level for benefits'.

Critics argue this could prove messy. It could also open the door to employees being able to choose whether to opt in to an EAP as a benefit, thereby challenging organisations' duty of care to their employees and driving up unit costs.

Potentially, it would also undermine the fundamentals that any EAP is designed to deliver: confidential employee assistance that can be accessed free of charge at any time.