Step 1: Choose How to Deduct
There are two ways to deduct insurance costs from an allowance:
1. Fixed Amount
Example: £30 per month for all employees, regardless of the actual cost of their insurance.
Recommended for inclusivity, as all employees contribute the same amount.
2. Exact Amount
Example: £33.75, reflecting the precise cost of the employee’s insurance.
The amount will vary for each employee.
⚠️ Note: If you choose this option, you cannot block the employee from enrolling, which may result in a negative allowance balance, but this does not create additional tax implications.
Step 2: Decide How to Apply the Deduction
Pro-Rata
The first deduction is adjusted based on when the cover starts.
Example: If cover starts 20% of the way into the month, the first deduction will be 80% of the monthly cost.
A similar calculation applies when an employee leaves a policy or the business.
Full-Period
The full monthly cost is deducted regardless of start or end date.
Example: An employee joining mid-month will be charged the full month’s cost. The same applies when leaving.
Step 3: Decide Whether to Block Enrolment if Allowance Is Insufficient
Yes: Employees cannot enrol unless their allowance balance covers the deduction. You would need to top up the balance to proceed.
No: Employees can enrol at any time, even if their allowance balance is insufficient.
Remember: If using the exact amount deduction, blocking cannot be applied.
This flexible approach ensures insurance contributions are handled fairly, while giving employees and administrators clarity and control.