The advantages for employers of giving staff gift vouchers

Gift vouchers or gift cards have grown in popularity recently among  employers as an incentive tool. But why are they regarded more favourably than that more traditional motivator – the pay rise?

The gift voucher market has grown dramatically recently. They date back more than 70 years, but since 2003, annual growth has been running at between 5% and 15%, according to trade body the UK Gift Card and Voucher Association (UKGCVA).

The whole market is now worth £4 billion, of which 40% is business-to-business, says director general Andrew Johnson.

Gift vouchers – also called incentive or motivation vouchers – started out as paper-based tokens, awarded to staff to use at their discretion at retail or leisure outlets, or even for holidays.

Employers commonly give them out through motivation schemes, although many employees now receive vouchers through flexible benefits or voluntary benefits programmes.

Today, besides paper vouchers, which remain popular, there are also electronic gift cards, e-vouchers, voucher cheques, and even voucher codes distributed via SMS to mobile phones. Pre-paid debit cards are another alternative.

Whatever the format, the growing use of vouchers suggests that employers find them an effective way of engaging and motivating their workers, providing a reward of tangible monetary value that, at the same time, has an element of “treat” about it.

Andrew Johnson, director general of The UKGCVA, says: “Companies like gift vouchers because of the convenience and choice – they’re leaving the final decision to the individual, but still giving them an informed choice.”

Cash is not necessarily king

But surely, if an employer really wants to motivate employees, cash is the better option?

Well, maybe not.

Johnson says: “Cash gets swallowed up by personal bills, whereas a voucher generally represents a treat and gives the person spending the voucher some sort of memory. So they make a positive association between that treat and their employer.”

Marketing agency P&MM quotes a survey by US market research firm Wirthlin, which found that cash incentives had limited impact in a survey of more than 1,000 employees. Some 29% of respondents said that they spent the cash on bills, 18% could not remember what they spent the money on, and only 9% recalled buying a special personal treat.

“The idea of motivation theory,” says John Sylvester, executive director of P&MM, “is that there has to be a close link between the incentive scheme and the employee behaviour, and the branding of the reward.

“This is so that the employee clearly associates the reward with the performance, and thinks in his or her mind, ‘I’ll get that reward again if I perform better’.”

Another study, by the International Society of Performance Improvement, found that tangible awards increase employee performance by an average of 22%, while team incentives increase performance by as much as 44%.

Besides being a better motivator, gift vouchers have other advantages.

“A voucher scheme enables an employer to align itself with a specific brand,” says Johnson.

Such is the range now available, employers can offer their staff vouchers ranging from top-end, high-street retailers to ethical schemes encouraging eco-friendly products.

Employers can also make savings through voucher schemes on income tax and national insurance contributions. An employer only pays income tax and NICs on the purchase cost of the voucher (assuming it is non-cash), rather than the value of the voucher to the recipient.

So, for example, if an employer gives a £100 gift voucher to an employee which it only paid £95 for, then the amount liable for tax and NICs is £95.

There are also generous discounts available from voucher providers for employers that buy in bulk.

At House of Fraser, employers can get discounts that rise according to the volume of vouchers purchased, starting at 2.5% for £1,000 to £4,999 of vouchers, and climbing to 10% for more than £15,000 of vouchers.

Single retailers tend to be more up-front about discounts, although that’s not to say there aren’t generous savings available from the multi-outlet providers.

Love2reward director Martin Cooper says: “Employes have to order a minimum of £1,000 to get a discount, but the size of the saving tapers so that you get a higher rate as the order value climbs.”

And of course, employees who use the vouchers are able to make savings that wouldn’t be available when paing by cash.

But perhaps the biggest advantage of an effective voucher scheme, is a happy and motivated workforce.

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