What Is Payroll Giving & How Does It Work?

November 2021

You may have heard about the benefits of Payroll Giving...

In this article, we're going to explain what it is, how it works, why it's important, and most importantly, how you can start offering it as an employer.

With Payroll Giving, charitable donations can be effortlessly made as part of the payroll process, meaning the charity can receive full donations pre-tax.

This is because the money is automatically sent to the charity before income tax is applied. 

For example, if you're a 20% taxpayer, 80% of your donation amount will be taken from your salary and 20% will be taken from the tax which would have usually gone to HMRC.

This process is facilitated by a payroll bureau service like PayCaptain, which allows employees to easily select a charity of their choice from within the app.

This video explains more:

Over 2,000 charities are now set up to allow employees to make regular donations from their gross pay.  

There are also lots of other benefits of offering Payroll Giving when it comes to employees feeling happy and fulfilled at work.

Is Payroll Giving A Salary Sacrifice Scheme?

In short, no. Deductions are taken from an employee's pay, after National Insurance and before tax, and do not impact on final salaries.

Payroll Giving Vs Gift Aid

At this point, you may be wondering whether Payroll Giving or making charitable donations through employers is actually any better than Gift Aid? Or maybe you’re just unclear on the differences between them.

Well, consider this...

It's estimated that the total amount donated to charities in 2018, was around £10.1 billion - and that's in the UK alone!

The problem is, with most donations being made from net earnings (after Income Tax is paid), charities will need to claim Gift Aid to get the tax back from HMRC.

Unfortunately, a lot of people forget to fill in this information, and even for those who do, the huge administration cost of this can eat into their earnings.

But because with payroll giving, the donations are made from gross pay (before tax), charities no longer have to use precious resources claiming this back.

This reduces their administrative costs, so they can focus more funds toward the cause itself.

Another little-known fact is that charities are unable to claim back tax above the basic rate through the Gift Aid scheme. This means they could be missing out on thousands of pounds of potential funds. 

This isn't an issue with Payroll Giving since the donations are automatically forwarded pre-tax so charities always receive the full amount regardless of the employees tax bracket.

What Is Donation Matching Or Matched Giving?

Donation matching is an initiative in which an employer can match their employee's donation to a specific cause.

For example, if an employee donated £50 to their chosen charity, the employer would add an additional donation of £50, meaning the charity would receive a total of £100.

PayCaptain’s built-in payroll giving function allows employers to easily match employees’ donations each month. It also give employers the ability to choose whether this is offered for any charity, or specific partner charities for example.

Is Payroll Giving Right For Your Company?

With so many people giving to charitable causes these days, offering payroll giving can be a great way to enhance your employer value proposition.

If you’d like to see how PayCaptain can help streamline your entire payroll process, whilst also creating a great experience for employees with features like on-demand pay and automatic payroll giving, book a demo today!


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