Sacrificing your salary may not sound all that tempting to some but in actual fact it can make perfect financial sense. The benefits of a Salary Sacrifice Scheme enables employees to mutually agree to exchange part of their salary for a non-cash benefit from their employer, that then does not attract Tax and/or National Insurance charges. The benefits to not only the employee but also the company are two fold and can offer a mutually beneficial package.
Salary Sacrifice is commonly used to boost pensions, but can also be used to give up part of a salary in return for benefits such as bikes, childcare vouchers (for those that were scheme members before 4 October 2018), mobile phone schemes and even gym memberships to name but a few. Reducing salaries in this way decreases the gross (pre-tax) salary, but there are advantages to doing this for both the employee and the employer. Because the gross wages are now smaller, less income tax and National Insurance (NI) will be taken from the employee’s earnings and the employer saves on National Insurance too.
Employees benefit from paying less tax and National Insurance Contributions and Higher Rate Tax Payers will automatically receive the full benefit of their contributions, meaning they do not need to complete a Self-Assessment Tax Return each year in order to get the full tax relief on their pension contributions.
Salary Sacrifice can be a great benefit for staff, and can offer some desirable schemes which can help staff feel motivated, and more like a part of the business, not only boosting morale but making them feel valued and invested in the businesses future. It also makes staff feel secure and provides evidence of time commitment to the company. Employees can tailor their salary package in a way that meets their work and life balance, whether they have children and would benefit from childcare vouchers, or whether their long term future plans of a pension rate highly. Or indeed a perfect combination of both may be beneficial.
How much of an employees salary that can be sacrificed, depends on what is mutually agreed with their employer. However, the amount cannot mean their salary falls below the National Minimum Wage.
Using Salary Sacrifice as a means for employees to pay their pension contributions is a great benefit as it allows employers to achieve significant savings in National Insurance Contributions, reducing the overall cost of their Workplace Pension contributions and the savings for an employer can be considerable given that the scheme can be adopted by a number of employees throughout the business.
Offering these benefits shows employees that they are valued, and can improve engagement and retention for your company. As these are often long-term arrangements, it shows that employers are willing to invest in their employees’ futures too. Well-being for staff should always be a priority and it has been shown that the impact of non-financial rewards can be highly effective in achieving greater job satisfaction, as a happy workforce is a productive workforce, and an improved benefits package to your employees is a win-win situation for all.
For further information and assistance in the benefits of a Salary Sacrifice Scheme please contact us here.
