According to a recent survey by Hubblehq, 52% of startup founders would prefer their teams return to the office, with only 12% saying they didn’t have a preference one way or the other.
In reality, though, rising rent prices in cities across the UK have forced people into more rural areas, and people generally like to work as close to home as possible to avoid lengthy commutes and the associated costs that come with it.
So, where does that leave you if you’re an employer? Well, a travel allowance is a possible perk that could help you retain (and attract) staff who’d rather work from home, or at least closer to home.
But what exactly is a travel allowance? And how does it work? Let’s break it down.
What is a travel allowance?
Simply put, it’s a form of financial assistance which covers the cost of an employee’s commute to and from work.
It’s intended to help an employee offset their travel expenses, and is entirely optional on the part of the employer. They’re often offered on a case-by-case basis, although some employers will just have a blanket cover-all policy in place.
They can be a useful way to attract and retain employees, giving them an incentive to stay when they might otherwise leave for a job closer to home, hybrid, or entirely remote.
How does a travel allowance work?
There’s no ‘right’ way, and it’s for you as the employer to decide how you want to go about it. We’ll go over a few potential examples you might consider.
A fixed-amount travel allowance
Some employers offer a fixed allowance (or flat rate) for employees’ travel costs. This can be useful for budgeting, because you’ll usually know how much you’ll spend each month – although you might agree a policy to also cover any overspending. Employees keep the difference if their actual travel costs are below the allowance.
Reimbursing travel expenses
Employees could submit receipts or mileage claims for their commuting costs, and you’ll cover these as necessary. This usually involves a bit more admin for both you and your employee, and it can sometimes mean unpredictability. It’s worth implementing a maximum amount which can be claimed!
Other options
There are also things like the ‘Cycle to Work’ scheme to consider. This allows employees significant savings if they buy bicycles and accessories through a salary sacrifice – literally sacrificing some of their salary so their pay is lower, in exchange for something of equal value.
This ‘sacrifice’ happens before the calculation for tax and National Insurance (NI) contributions, so it reduces the amount they (and you as their employer!) pays.
Alternatively, some employers offer discounted public transport schemes which might be preferable for people located farther out (who maybe don’t have the option to cycle).
It should be clear by now that there’s a fair amount of flexibility involved, and this extends to the actual terms themselves, which are usually negotiated between the employer and the employee.
How do I work out travel allowance?
There are various factors that affect this, but the first thing you’ll want to do is determine your method for covering employees’ travel expenses.
If you’re using a flat rate allowance, you’ll need to decide on a fixed amount to be paid per qualifying journey. This tends to be based on such things as travel costs, distance, etc.
A direct reimbursement is based on the employee’s travel expenses, which they’ll submit to you in the form of receipts, tickets and mileage logs.
Bear in mind that you may have to calculate the distance between the employee’s home and the workplace if they use a personal vehicle, in which case the allowance will be based on mileage (as opposed to, say, the cost of a train ticket).
You may also have to cover the cost of tolls and parking.
Lastly, you’ll have to decide on the frequency of payment (e.g. weekly or monthly). This may be up for debate in the negotiations, but it’s worth at least giving some thought to this beforehand. Some employers find it easier to simply include it as part of their payroll processing.
What are my tax responsibilities as an employer?
You need to determine whether the travel allowance is a Benefit in Kind (BiK), which makes it a taxable benefit – or whether it’s tax-free. For example, if your employee is commuting to their normal place of work then having these costs covered by you usually means it’s a Benefit in Kind. They’ll pay tax on the value of the benefit they receive (and you’ll pay NI contributions on it as their employer).
Whereas if you’re reimbursing them for business travel, (i.e. visiting a client) and it’s paid within HMRC’s approved rates – it’s tax-free.
If the allowance is considered a taxable benefit, income tax and National Insurance will apply, and you as the employer are responsible for deducting the appropriate amounts of these.
Part of being responsible means keeping accurate records, and these should include important details like dates, totals, and methods of travel – as well as the receipts themselves if possible.
Having good records will streamline the process of reporting taxable benefits and expenses to HMRC.
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