Should you create a hardship fund for staff?
One way to help your staff and their families cope with the cost of living crisis is to offer them money through a workplace charitable fund. Laura Soley and Oliver Scutt explain the legal ramifications
As a consequence of Covid-19 and the deepening cost of living crisis, many people in the UK are experiencing a significant loss of income. In response, many employers are considering the ways in which they might help provide additional support to employees (particularly those on lower pay) to alleviate some of the pressure on household budgets and expenses.
Recently, some employers have provided a cost of living pay rise to their employees, seeking to counterbalance the steep rise in inflation. Others have offered the option of paid overtime to increase earning capacity and introduced flexible working patterns to employees with lengthy commutes to help reduce fuel and transport expenses. And in addition, some employers may also have been considering whether to introduce or enhance their longer-term benefit packages to help employees save money.
Another option that employers can also consider to help support employees facing financial hardship is introducing a charitable staff hardship fund. In essence, a hardship fund enables an employer to provide financial support to a defined class of people called ‘beneficiaries' and is aimed at relieving or preventing those individuals from falling into poverty. Importantly, the class of beneficiaries would not need to be restricted to employees, and could therefore provide wider relief to former employees, pensioners, their families and dependants.
From a legal perspective, a charity is not usually allowed to have a beneficiary class which is connected by employment, but there is an important exception for charities that relieve poverty, which was confirmed by the Upper Tribunal in the Attorney General v Charity Commission for England and Wales and others in 2012. It is therefore possible for commercial companies and other organisations to establish charitable hardship funds to support employees, former employees and their families who are struggling financially. Helpfully, donations to a charitable staff hardship fund can also be made tax efficient by employers and members of staff by donating through the Gift Aid scheme.
In terms of operating a charitable staff hardship fund, it is important to make sure that funds are directed appropriately to the ‘relief or prevention of poverty' in accordance with charity law. This will usually require careful means testing of those being supported, for example, by putting in place financial thresholds and appropriate eligibility criteria. For those individuals who are eligible, the fund can then be used for regular or one-off support, such as for essential expenses like rental payments, medicine, food or debt relief advice. Employers can establish a hardship fund as a new charity which they register on the Charity Commission's Register of Charities. Or, to provide a faster response, organisations which already have a charitable corporate foundation may be able to channel hardship funds for employees through their foundation subject to appropriate advice, or use a donor advised fund or existing charity to house the fund.
Laura Soley is a partner and Oliver Scutt is a senior associate at Bates Wells
Image: Shutterstock
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