What is an employee suggestion scheme?

An employee suggestion scheme is a program which asks employees to submit suggestions on how to improve the company, in exchange for a reward. The suggestions can be about anything from new or improved products to more efficient methods of operation. The company then evaluates the suggestions and decides which ones to implement.

What rewards are usually provided for employee suggestions?

There are two types of awards that may be given under an employee suggestion scheme, which are the following:

• Encouragement awards; and
• Financial benefit awards.

Encouragement awards are small bonuses which are given to employees for suggestions which the company do not plan to implement. This may apply where suggestions have intrinsic merit but may not be suitable for the company.

A financial benefit award is a larger bonus for an employee who makes a suggestion which will be implemented and benefits the company financially.

Are there any limits on these rewards?

There are limits on both types of rewards for tax and National Insurance purposes. Encouragement awards are exempt from tax and National Insurance up to £25 and financial benefit awards are exempt up to £5,000. The amount that is exempt on financial benefits is the greater of:

• 50% of the money the company expect the suggestion to make or save the company the year after it is implemented; or
• 10% of the money the company expect it to make or save the company in the first five years after it is implemented.

If an employer gives awards that are higher than these limits, the extra payment will be classed as earnings.

What are the benefits of an employee suggestion scheme?

There are many potential benefits to implementing an employee suggestion scheme, including the following:

• Improvement of employee engagement and morale;
• Increased innovation and creativity;
• Cost savings and increased efficiency;
• Improved customer satisfaction;
• Can help to build a culture of continuous improvement within the company; and
• Improved employment and retention rates of skilled employees.

What are the drawbacks of an employee suggestion scheme?

While there are several benefits to implementing an employee suggestion scheme, there are also some potential downsides, including the following:

• May be time-consuming and expensive to manage;
• Some employees may feel discouraged if their suggestions are not implemented, which can lead to decreased morale; and
• There is a risk that employees may submit suggestions that are not feasible or that could be harmful to the company.

Are there any rules or restrictions?

There are some rules and restrictions which will apply if an employee suggestion scheme is implemented, such as the following:

• The suggestion box must be made available to all employees;
• When an employee makes a suggestion, they must do so outside the scope of their regular duties;
• The suggestion must be about the company; and
• The suggestion cannot be made at a meeting for proposing new ideas.

Recommendation for employers

If an employee suggestion scheme sounds like something that you would like to implement into your company, it is important that the following is considered:

• Clearly define the goals and objectives of the scheme;
• Communicate the scheme effectively. It is important to make sure all employees are aware of the scheme and how it works;
• Establish a fair and transparent process for evaluating suggestions;
• Provide feedback and recognition for employees who make suggestions; and
• Continuously evaluate and refine the scheme.

Overall, an employee suggestion scheme may be a great way to encourage employee engagement and improve overall performance. However, it is important to approach it thoughtfully and carefully to ensure that it is implemented effectively.

If you have any questions about implementing an employee suggestion scheme or have any other employment related questions, please contact our employment law team by emailing employment@warnergoodman.co.uk or calling 023 8071 7717.