PAY rises could be under threat. Fears are escalating over a lack of preparation by companies for January’s introduction of zero-10 tax reform.

The increase in company social security payments will affect every employer in the island and could increase payroll costs by four to five per cent, according to KPMG tax director Tony Mancini.

‘Companies may have only a five per cent increase in their payroll budget, which could be swallowed up by social security payments and that will leave little or nothing for pay increases,’ he said.

‘People will be affected, so companies need to make sure they understand the implications and communicate this to their staff,’ he said.

Mr Mancini added that some companies would be under pressure to increase wages by more than usual to offset the increase in contributions that staff will be paying.

And he said some firms could find themselves losing staff as a result.

‘It’s a tough market for employers at the moment and undoubtedly some staff will use this as an opportunity to find new jobs,’ he said.

‘Tax-efficient strategies such as pensions, share options and health care can help with staff retention, but they are time-sensitive.

‘If companies want to take preventative measures, the time to do so is now.’

Mr Mancini added that although some companies had dedicated time to preparing for the introduction of the new regime and assessing the implications, there was still confusion – not helped by the fact that much of the important detail is only just emerging, with some key areas still to be clarified.

‘The broad strategy has been available for some time now, but with many businesses being so busy in 2007, they may not have had the time to focus on what impact there will be on their business,’ he said.

But he was not without praise for the States, saying it should be congratulated on what it has achieved.

‘Zero-10 is the right policy for business, but there is a concern that at some stage in the future we will have to do more to meet the revenue demands of States departments,’ he said.

KPMG will hold another in its series of seminars on Tuesday 9 October to give an overview of the zero-10 proposals and demonstrate what effect they and the associated changes will have on a range of businesses.

‘KPMG staff have been analysing the proposals as they have evolved and by using this knowledge and insight, we can give real-life examples of what the proposals really mean to businesses of all sizes and in a variety of sectors,’ said Mr Mancini.

* The seminar is open to any business that is interested in the effects of zero-10 and there will be an opportunity for questions to be answered after the seminar. Anyone wanting to attend should call Julie Snell on 721000.