© Ceridian Corporation. All rights reserved. Fiscal Efficiency David O’Connor Simon Parsons

© Ceridian Corporation. All rights reserved. Agenda Objective: Create a common point of view about fiscal efficiency & How it can realise significant value for organisation Context Salary Sacrifice & Flexible Benefits Fiscal Efficiency Impact Fiscal Efficiency in Action Key salary sacrifice & flexible benefits considerations Summary

© Ceridian Corporation. All rights reserved. Context – Fiscal Efficiency Low or negative GDP growth in short-medium term UK debt levels are at an unprecedented high, Bank bail out, etc Governmental Spending (and collecting review) 20 th October Demand on public services increasing…£6.2bn of cuts Current Tax system under immense pressure NI Holiday for small start ups (1%) but still unprecedented levels for employees Increased taxation burden on business

© Ceridian Corporation. All rights reserved. Context: Fiscal Efficiency Opportunity for Organisations 35% of ceridian customer base offer some form of salary sacrifice benefit recorded in payroll Key benefits offered are Childcare Vouchers (60%); Pensions (24%) and Retail vouchers (6%) 10% of those salary sacrifice users are in the retail space Of the retailers 83% of sacrifice benefits focus on two key areas – Child Care – 39% – Pensions – 44% Opportunity to use benchmark NI payments to realise fiscal efficiency – Move to 5.9% as per best example Primark M&S BHS Selfridges Next Debenhams John Lewis Somerfield ASDA Sources: Statutory Accounts & Ceridian Payroll Data 5% range

© Ceridian Corporation. All rights reserved. Salary Sacrifice & Flexible Benefits Salary sacrifice & fiscal efficiency benefits are accessible through payroll only – Role of payroll is to demonstrate compliance/auditability to regulatory body (HMRC) – Choice of what, when & who is determined by employer only – no concept of enrolment (pensions) – No scenario modelling for employees – the first time they see impact in pay is via payslip Flexible benefits can provide both broader access to many benefits and pass choice back to employee – Drive greater employee engagement & reward through choice and enrolment – Will manage a greater basket of benefits (salary sacrificable or not) Not Mutually Exclusive Employee Reward Employer Reward Salary Sacrifice Contractual arrangement where employee gives up cash remuneration in return for non- cash benefit. (NI saving) Flexible Benefits A benefits plan that allows employees to select from a pool of choices, some or all of which may be tax- advantaged. (Engagement)

© Ceridian Corporation. All rights reserved. Fiscal Efficiency Impacts PayrollHMRCHR Payroll reflects reduced pay for the employee – the actual new contract position Alternatively, reflect notional pay with reduction or Payroll reflects original pay with deduction (but contract variation does exist) Taxation at source Benefits are reported (if required) No requirement to actively consult HMRC but they will confirm tax & NICs arrangement of scheme namely: There is an effective variation of contract – and that it is not being applied retrospectively The correct Tax and NICs application is being made for the benefit being provided Payslip representation is not a concern of HMRC as long as the contract reflects the true legal position HMRC audit – ensure you have the employment contract agreements for the salary sacrifice arrangement For salary sacrifice to be effective a change in contractual terms will need to be shown (by general notice) Contractual benefits (non-cash) consideration when the employer cannot reduce/offset from the employee National Minimum Wage needs to be maintained Occupational Pension Scheme rules may require revision Position for leavers need to be considered

© Ceridian Corporation. All rights reserved. Fiscal Efficiency Opportunity in Action Dynamic Pay Processing (auto opt in) – Increase take up through change in policy – Inclusion of NMW colleagues on a payrun by payrun basis – Extends into part-time workers and Lower Earnings Limits (LEL) Policy & process integration with WFM and Payroll – Maximum hours contracts for staff – control NI at shop floor level – Manages shop floor staff from exceeding hours and NI payment threshold, the complexity/ rules are in the hardwired into the system Opportunities are directly linked to attitude to fiscal boundary defined by organisation, this is not necessarily uniform All fiscal efficiency opportunities are validated with independent 3 rd party & internal tax advisors – Ceridian operationalise / execute advice through payroll & benefits

© Ceridian Corporation. All rights reserved. Key Considerations Salary SacrificeFlexible Benefits HMRC considers any benefit to be chargeable under ITEPA 2003 s62, as per cash (Heaton vs. Bell) Bi-directional Integration with payroll for accuracy & efficiency Implications on National Minimum Wage (NMW) employees &/or lower earnings limit Ability to manage benefit cost increases & future proof Implications on Maternity Rights for employeesEnrolment - online, phone or paper? Implications on occupational pension rules post 2012 and the impact on organisational leavers Segmented approach possible to different employee groups Child Care Vouchers challenge (Proposal) End new entrant benefits in April 2011 & remove CCV benefit from April 2015 Use benefits aggregator or DIY

© Ceridian Corporation. All rights reserved. Questions to consider Where will fiscal efficiency be driven from? – From Payroll or Flex benefits? – Which population will we apply this to, can we carve out distinct employee segments – One approach for customers has been to offer payroll fiscal efficiency to staff and flex to management Understand the operational boundary where organisations wish to take fiscal efficiency – How far is organisation prepared to go to realise employer reward – How much does organisation wish to engage employees Can this be Linked to a wider transformation programme – Avoid “death by 1000 cuts”

© Ceridian Corporation. All rights reserved. Summary Fiscal efficiency can be driven from both payroll and flex solutions Payroll fiscal efficiency delivers employer reward whilst flexible benefits delivers employee rewards – FE through payroll is functional, enrolment limiting & no scenario modelling – Flexible benefits systems enable easy enrolment, employee choice & selection Our experience shows most organisations access employer reward via payroll – focusing on pensions and child care vouchers Opportunity is to drive down the NI % across the workforce to a best in class ratio (5.9%) – Each percentage point is a significant employer reward

© Ceridian Corporation. All rights reserved. And finally… Where is your organisation on the chart? Primark M&S BHS Selfridges Next Debenhams John Lewis Somerfield ASDA Sources: Statutory Accounts & Ceridian Payroll Data 5% range

© Ceridian Corporation. All rights reserved. Fiscal Efficiency David O’Connor Simon Parsons