What's wrong with payroll giving?

It was worth £106m last year, but has never realised its full potential. David Ainsworth finds out what needs to be done to make it work better

Payroll
Payroll

Over the past 20 years, payroll giving has attracted praise and support from all quarters, but comparatively little cash. Last year it was worth £106m, including £30m in tax relief, but it remains small in comparison with the total of about £13bn given to charities by individuals each year.

The principle is that employees make payments to charities through the company payroll before any tax is deducted. Donors are recruited by a professional fundraising organisation that visits companies, and transactions are handled by a specialist payroll giving agency. Donors can choose whether their details are passed on to the charity.

Because no tax is ever paid, it is the often the most tax-efficient way of regular giving, especially for higher-rate taxpayers. It is simple for the donor, has high retention rates and attracts comparatively high donations. It is the only major form of fundraising that raises more from men than from women.

Two years ago, however, an independent review of payroll giving, commissioned by the Institute of Fundraising and written by Vanessa Potter and Jonathan Scales, reported several major problems. It found that the system was perceived as bureaucratic, inefficient and lacking the direct contact between charities and donors that leads to long-term relationships. About half the workers in the UK could not use it, the report said, because their companies did not provide it, and it could not be 'moved' when employees changed jobs.

The report made a number of recommendations, only some of which have been implemented (see opposite page). So what do the various players perceive to be the continuing difficulties?

CHARITIES

Liz Davies, corporate services manager at the Charities Aid Foundation, which runs a payroll giving agency, says attitudes vary. "For some, it's a favoured form of giving," she says. "For others it's seen as a barrier to donor contact, and they are not so enthusiastic."

The distant relationship between charities and donors is a major problem, says Paul Amadi, director of fundraising at the NSPCC. But he says the NSPCC has made it work by ensuring as far as possible that donor details are gathered and passed on to the charity.

Virginie Kan, individual giving manager at the RSPCA, says payroll giving must compete with other priorities. "For us it's a very important income stream," she says. "Improvements could make things smoother, but it's very largely down to charities to engage in the process."

AGENCIES

The relationship between charities and intermediaries - professional fundraising organisations and payroll giving agencies - was criticised in the institute's report.

"It takes a long time to get the money from agencies," says Amadi. "There's also a perception that it's bureaucratic and complicated, with lots of intermediaries, and there's a high level of administration for charities."

Kan says it is important for charities to be realistic: "It's a big job for payroll giving agencies to get the money across to us. Payments come in over a long period at different dates."

The institute has tried to solve these problems, says Lee Grant, its tax-effective giving project manager. Common service standards for PGAs and PFOs are likely to appear early next year on issues including transparency of donor information and payment times.

BUSINESSES

Cathy Pharoah, co-director of the Centre for Charitable Giving and Philanthropy at Cass Business School, says that if payroll giving is to become a major force, businesses must drive it.

"They are the key," she says. "If the sector wants to push this, the target has to be HR directors. The success of payroll giving is highly sensitive to the amount of promotion by companies."

Amadi agrees that charities must target businesses. "We've sent our corporate fundraisers on training courses to make sure they pitch effectively to companies," he says. "We always want to make this part of any corporate partnership."

But Pharoah says the complexity of payroll giving makes it difficult for businesses and the other organisations involved to promote it.

"Many different people have to respond to the right incentives," she says. "Perhaps its problem is that it's compared with a flexible scheme such as Gift Aid, when it should be seen as a relatively successful form of giving in its own right."

GOVERNMENT

Many in the sector would like to see the government make it mandatory for employers to offer payroll giving, but few see this as a realistic prospect. Davies says there are other improvements the government could make.

"We would like to talk to them about how to incentivise the scheme," she says. "We think government should put more effort into encouraging organisations to take it up."

The institute would also like to see the transfer of payroll giving accounts through P45s. But Grant is not optimistic: "It would cost millions of pounds and take thousands of work hours. Only if we get in during a redesign of the P45 for another reason is that likely to go ahead."

But he says the institute is working on a form that payroll givers would receive from their employers on leaving, which would contain the details needed to set up a new account.

 

CASE STUDY

The results that are possible with effective management are illustrated by the case of the Police Service of Northern Ireland, which enrols more than half of new staff in its payroll giving scheme and has signed up about 30 per cent of the force.

The PSNI has created a culture where it is normal to give, says Michael McKeown, senior finance manager in the force. It is normal policy for new recruits to be asked during their induction process - often on their first day - whether they are interested in payroll giving,

"Many sign up and never notice it again," he says. "Who cares about a few pounds coming out of your wages before you get paid? People usually continue to give until they leave. The only change we see is when people decide to give more."

The key, he says, is support at the very highest level. Payroll giving has had the support of senior officers in the force, and staff regularly receive news and support from the chief and deputy chief constable.

 

- What happened to the recommendations of the IoF report?

Move towards a universal payroll giving system through a 'halfway' approach, which would make it compulsory in certain circumstances.

So far, there has been no indication that the government will do this

Find an interim solution to support the easy transfer of payroll donors as they move jobs.

The institute is currently taking steps to introduce such a system

Introduce common service standards for all payroll giving agencies and an external system to monitor their performance.

This is being jointly developed by the institute and the Association of Payroll Giving Organisations, and is likely to be published early next year

Introduce robust audit and accountability systems for all payroll giving transactions.

Charities say that these functions have improved, but maintain that further progress is still needed. Minimum standards will be included in the common service standard

Review the role and management of PGAs.

This has also been part of the process of developing a common service standard

Review the statutory framework for PGAs.

The institute says the statutory framework will be considered only if the common service standard cannot be agreed

Produce a systematic mapping of payroll giving to provide robust data to support policy.

Some research has been carried out into payroll giving, but comprehensive research to support policy has not taken place

Continue to promote payroll giving and support incentive schemes.

Charities and PGAs feel that government support is necessary to grow payroll giving. Nick Hurd, the Minister for Civil Society, recently asked charities to say what the government should do to improve payroll giving

 

Statistics

1987 - The year in which payroll giving was launched in the UK, based on a similar scheme in the US

13,000 - Approximate number of charities that are beneficiaries of payroll giving

7 years - The average period for retention of payroll givers, according to the Institute of Fundraising

56% of payroll givers are men, mostly in their 30s and 40s and working in management or a profession

40% of all payroll donors do not give in any other way. Among men, the figure is 49%

24m Staff are paid via PAYE, of which 10.5m work for organisations with payroll giving schemes

Source: Office for National Statistics

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in

Latest Jobs

RSS Feed

Third Sector Insight

Sponsored webcasts, surveys and expert reports from Third Sector partners

Markel

Expert hub

Insurance advice from Markel

How bad can cyber crime really get: cyber fraud #1

Promotion from Markel

In the first of a series, we investigate the risks to charities from having flawed cyber security - and why we need to up our game...

Third Sector Logo

Get our bulletins. Read more articles. Join a growing community of Third Sector professionals

Register now