New NFP entertainment capping rules
Despite the NFP sector pointing out that salary-packaged entertainment fringe benefits is relied on by the NFP sector to ‘top up’ salaries, which are consistently below those in the for-profit and public sectors, legislation was passed in November to cap them.
As of 1 April 2016, salary-packaged meal entertainment and holiday accommodation (venue hire) will only qualify for FBT exemption (or the FBT rebate) up to a grossed up value of $5,000. This is about $2,500 cash value.
Salary-packaged entertainment will also be reportable on employee payment summaries.
While many in the NFP sector were in favour of a cap on entertainment packaging, they also called for a higher cap than $5,000. The sector explained that the original rationale for the FBT concession — to attract suitably skilled employees into the NFP sector through the ability to offer reasonably competitive benefits packages — remains as compelling today as when first introduced.
FBT concessions were introduced as NFP organisations could not afford to recruit and retain employees at the same level as for-profit or government organisations. NFP organisations were offered the tax concession as a means of attracting a competent labour force and to alleviate to some degree the wage disparity between commercial, ‘market-based’ remuneration and the wages offered in the NFP sector. This wage disparity has only continued to grow and the rationale of attracting people with the right skills to work for NFP organisations continues to justify the FBT concession.
Exempt benefits are an accepted component of salary packaging arrangements across the NFP sector, and the sector pointed out that the capping of such benefits will cause economic hardship to employees, many of whom are acknowledged as receiving relatively poor remuneration for their work. For example, the retention of FBT concessions for NFP disability organisations will be critical to the success of the National Disability Insurance Scheme (NDIS). The bulk of people who work in the disability sector (along with aged care, child care and welfare services) are staff with few or no formal qualifications. They are responsible for providing personal care and support to the most vulnerable in Australia, and generally the work is hard and poorly remunerated.
Those working in the disability sector see salary packaging as a key component of their recruitment, remuneration and retention incentives, because the direct financial benefits are highly valued. At a time when more staff will be required as the demand for services grows with the introduction of NDIS, there is deep concern in the disability sector that the loss of the added benefits associated with salary packaging will place acute pressure on a sector which already struggles to recruit and retain employees.
Furthermore, it is likely to have a significant impact on the capacity of NFP organisations to recruit and retain staff across the entire sector, as those working in particular support roles such as business services, HR, finance and legal services will no longer be able to utilise the FBT concessions to seek to achieve some parity with for-profit and government salaries.
NFP organisations will now need to consider whether alternative remuneration strategies are available to them.