Salary sacrifice has grown in popularity to become mainstream in recent years, as more employers take advantage of the tax and national insurance savings it provides.
For the uninitiated, salary sacrifice is an efficient and cost-effective method of paying for employee benefits. It happens when the employee makes a contractual agreement with their employer to give up part of their gross salary and in return, the company agrees to provide a non-cash benefit.
Since April 2017, there have been a handful of products against which the savings from tax and national insurance can be used: –
- Cycle to work
- Government’s tax-free childcare scheme
- Green Car schemes
- Pensions advice
In times where company finances in some sectors may be under pressure, salary sacrifice could be a cost-effective method of offering or improving the benefits available to employees.
Given that almost all organisations have to offer a workplace pension scheme under the automatic enrolment legislation, it is surprising to find employers who are not making use of salary sacrifice as a method of managing pension contributions.
For example, if you take median pay for a UK employee at £30,420* per annum, with employee minimum contributions for automatic enrolment at 5%, an employee making their pension contributions via salary sacrifice could generate a national insurance saving to their organisation of £209.89** per annum.
If you multiply this by 100 employees, then the annual savings total amounts to over £20,000 per annum.
Overall, salary sacrifice is a great way to expand the range of benefits offered and add value to your package for little or no extra cost. This can be done whilst still supporting key aspects of your employee’s work-life balance, such as childcare, green travel and retirement.
*according to ONS, April 2019
** assuming all earnings are pensionable.