Gad Harari | Thursday 6th April, 2023
Salary sacrifice is a government backed scheme designed to help employers and their workers save on tax. An employee agrees, with their employer, to give up part of their salary in exchange for non-cash benefits.
This means that the employee's gross salary is reduced by the amount they sacrifice. The result is lower National Insurance contributions (NICs) for both the employee and employer.
Employers can set up a salary sacrifice arrangement by changing the terms of an employee’s employment contract. The employee needs to agree to this change.
Today, only 41% of small and medium enterprises offer salary sacrifice, compared with 85% of large organisations. Salary sacrifice represents a simple way to trim tax and help employees keep more of what they earn.
There are a variety of non-cash benefits that can be used for salary sacrifice. Some of the most common benefits include:
One of the most common methods employers take advantage is by making salary sacrifice contributions into employees auto enrolment pensions.
Traditionally an employer and employee pays a portion of earnings into a pension every month. With salary sacrifice the employee is paid less on the agreement that any money they sacrifice goes straight into their pension.
They are reducing their monthly take-home pay now in exchange for more money in their pension for the future.
The benefit is that by reducing the money they receive right now, they owe less tax. Therefore they get to keep more of what they earn overall.
Penfold offer free, bespoke, salary sacrifice consultations. We help businesses understand how they can take advantage of a tax efficient pension scheme.
There are some situations where salary sacrifice cannot be used. Some examples of this are:
Salary sacrifice can be a fantastic way to effectively increase employee earnings and save on tax. However, it can have an impact on anything that is linked to an employee’s salary. Here are a few things that can affect a decision to use a salary sacrifice scheme.
An employee's contract must be altered whenever they change whether they're opted in or out of a salary sacrifice arrangement. Their contract must be clear on what an employee's cash and non-cash entitlements are at any given time.
Tax and National Insurance advantages may not apply if an employee swaps between cash earnings and a non-cash benefit frequently.
Use our salary sacrifice calculator to find our how much your business and employees could save by switching to a tax efficient pension scheme.
Penfold's tech-first workplace pension makes it easy for employers to set up or convert to a salary sacrifice pension.
Speak to a Penfold salary sacrifice expert. A member of our team will explain how to save money with tax efficient pension contributions at your business.
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