Salary Sacrifice

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Are You Sacrificing Your Salary?

Since 2010 there has been a marked uptake in salary sacrifice, with the government reporting a 30% increase in clearance requests for such schemes.  

 

What is Salary Sacrifice?

Salary Sacrifice is a contractual agreement that reduces an employee’s cash pay in return for non-cash remuneration of equivalent value.

What are the most popular forms of Salary Sacrifice?

  • Pensions contributions
  • Childcare vouchers
  • Cycle-to work schemes

Who might not benefit from the scheme?

  • The lowest earners will be unable to participate in salary sacrifice as it is not permitted to take someone’s wages below the minimum wage.
  • People who work for smaller companies where there are fewer resources to administer such a scheme.
  • Smaller companies are likely to outsource their payroll.

Who benefits most

  • Companies save 13.8% NICs on every pound of salary replaced by pension contributions or childcare vouchers.
  • Employees of bigger companies are more likely to give NICs back to their employees.
  • Higher earners see the greatest benefit, with those earning between £100,00 and £122,.00 seeing effective marginal relief of 60%.
  • Middle income earners may also be able to retain child benefit.

Considerations before entering

  • Women thinking about starting a family might think twice in contemplation of future reduced maternity pay.
  • People for whom additional pension contributions will take them over the £1m threshold which could result in a 55% tax on their pension might just wish to pay income tax on their salary.

Future of Salary Sacrifice

Since 2010 there has been a marked uptake in salary sacrifice, with the government reporting a 30% increase in clearance requests for such schemes.  However, the government is not too keen on such arrangements, indeed, there is speculation that the government will withdraw the NIC benefit to employers in a bid to discourage such schemes.  It is unclear whether this will have a significant impact with the primary financial incentive coming from employer’s ability to negotiate bulk premiums at below market value. For the meantime at least it looks like salary sacrifice I here to stay

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