A consultation launched today by the Treasury sets out a range of measures it believes will increase take-up of the system that allows UK income taxpayers to make regular donations, tax free, from their earnings.
These include allowing private companies to become payroll-giving agencies and operate payroll-giving schemes for other organisations, a role that is currently reserved exclusively for charities.
The document says that in the past decade new non-charitable organisations have emerged and "changed the landscape of giving" by introducing new ways of donating and applying their "commercial acumen" to fundraising.
A Treasury spokeswoman said the government wanted to hear from companies such as Virgin Money and JustGiving, which have previously expressed interest in running payroll giving.
The government believes that payroll giving will be improved by widening the market. Increased competition among payroll-giving agencies would, it says, drive down processing fees and raise standards.
The document also proposes to reduce the processing time from 60 days to 30 so that charities would get donations faster. It says payroll-giving agencies, which have contracts with employers to provide the schemes, should be transparent about the cost of processing donations.
Other proposed changes to the system include the provision of an exit pack when an employee stops giving to the scheme, which explains how they can maintain a relationship with their chosen charity. The consultation document suggests introducing standardised forms to make sign-up simpler for donors.
In 2011/12, £118m was given to good causes by 735,000 people through payroll giving. But only 2 per cent of employers offered payroll-giving schemes and just 3 per cent of employees donated through them.
Sajid Javid, the economic secretary to the Treasury, said: "Charities do vital work in our communities, and this government is committed to helping them achieve more. Payroll giving is a powerful and flexible way for people to support the causes they care about. The scheme has real untapped potential, not just for raising money for charity directly, but also for starting a giving culture among those who do not normally donate."
The Charities Aid Foundation, which is the largest of the UK’s 12 payroll-giving providers, said it would work with ministers, charities and the private sector to help realise the "huge potential" of workplace giving.
John Low, chief executive of CAF, said: "It is excellent news that the government is committed to making this important tax-relief scheme work. With the right reform, payroll giving can play a huge part in encouraging more people to give and increasing the vital funds for charities at a time when demand for their work is higher than ever.
"CAF pioneered the concept of payroll giving. We have been pushing for some time for more radical modernisation of the scheme so that charities and the people they support can benefit fully."
Sir Stephen Bubb, chief executive of the chief executives body Acevo, said: "There is massive untapped potential in payroll giving, and as a country we have to raise our game to make it work."
The consultation will run until 19 April.