Salary sacrifice explained

Everything you need to know about Salary Sacrifice

What is salary sacrifice?

Salary sacrifice is a financial arrangement in which an employee agrees to forgo a portion of their pre-tax salary in exchange for non-cash benefits. This agreement is typically formalised through a contract between the employer and employee. The sacrificed salary is then used to provide benefits such as enhanced pension contributions, childcare vouchers, a company car, or even additional holiday days.

The main advantage of salary sacrifice is that it can result in tax and National Insurance (NI) savings, although it is important to ensure that the reduced salary doesn't fall below the minimum wage.

Because the employee's gross salary is reduced, they may pay lower income tax and NI contributions, which can lead to a larger disposable income. Employers also benefit from salary sacrifice schemes, as they can reduce their NI contributions.

However, it's important to note that sacrificing salary may impact future entitlements, such as pensions, statutory payments, or mortgage applications, as the reduced salary is used to calculate these amounts.

Salary sacrifice schemes can be an effective way to manage payroll, receive valuable benefits, and lower overall tax liabilities.

How salary sacrifice works

Salary sacrifice works by allowing employees to give up part of their pre-tax salary in exchange for non-cash benefits provided by their employer. The employee and employer agree on the amount to be sacrificed, which is typically set out in a formal contract. Once agreed, the employee’s salary is reduced by the specified amount before taxes and National Insurance (NI) are applied. This reduction in salary lowers the employee’s gross income, potentially resulting in a lower income tax and NI liability.

For example, if an employee sacrifices £200 per month for a pension scheme, their taxable salary is reduced by £200, meaning they will pay tax and NI on a lower income. The £200 is then redirected to the pension scheme, where it may be matched or topped up by the employer, depending on the arrangement.

Salary sacrifice benefits both the employee and employer. Employees can reduce their tax burden, while employers can save on NI contributions. However, employees need to consider the long-term impact on things like mortgage applications or future pension entitlements, as the sacrificed amount may affect these calculations.

What are the benefits of salary sacrifice?

Salary sacrifice schemes provide numerous benefits for both employees and employers. By allowing employees to exchange a portion of their salary for non-cash benefits, these schemes offer financial advantages, tax savings, and enhanced perks, making them an attractive option for those considering a lifestyle change. For employers, salary sacrifice can lead to cost savings and improved employee satisfaction, creating a win-win situation for both parties. Below are the key benefits for each:

For Employees:

• Reduction in taxable income through salary sacrifice, resulting in lower income tax and National Insurance contributions.
  
  
• Increased disposable income due to tax savings.
  
  
• Access to valuable benefits (e.g., enhanced pension contributions, company cars, or childcare vouchers) at a lower cost than purchasing privately.
  
  
• Opportunity to boost retirement savings through larger pension salary sacrifice contributions.
  
  
• Potential savings on everyday expenses while receiving additional perks.
  
  

For Employers:

• Reduction in National Insurance contributions on the sacrificed salary.
  
  
• Cost savings from offering salary sacrifice schemes instead of traditional salary-based benefits.
  
  
• Improved employee satisfaction and retention through attractive benefits like salary sacrifice options.
  
  
• Enhanced company reputation as an employer offering valuable perks.
  
  
• Competitive advantage in recruitment, helping attract top talent.

Professional salary sacrifice implementation

At Pulse Accountants, we provide a comprehensive service to help businesses implement and manage salary sacrifice schemes efficiently and compliantly.

What We Offer:

• Expert Consultation – We assess your business needs and help design a salary sacrifice scheme tailored to your workforce.
  
  
• Scheme Implementation – We manage the setup process, ensuring compliance with HMRC regulations.
  
  
• Employee Communication – We provide clear, professional communication to employees, ensuring they understand how salary sacrifice works and the benefits it offers.
  
  
• Ongoing Support – Our team is available to answer queries and provide ongoing administrative support.
  
  

Pricing

• Cost: Varies on a case-by-case basis. Based on company size and employees. Contact us to get a quote.
  
  
• Transparent Communication: We communicate the scheme benefits directly to employees and provide full support for any questions.
  
  
• Flexible Payment Options: Our fee is spread over several months, so your business benefits from cost savings immediately.

Why choose Pulse?

With extensive experience in salary sacrifice schemes, we provide businesses with a seamless and fully compliant salary sacrifice solution. Our team ensures that both employers and employees understand the benefits and make the most of their opportunities.

Key Reasons to Work With Us:

✔ Industry Expertise – We have a deep understanding of salary sacrifice regulations.

✔ Tailored Solutions – We design bespoke schemes that align with your business and workforce needs.

✔ Compliance Assurance – We ensure full adherence to HMRC guidelines and workplace rules.

✔ Dedicated Support – Our team is available to provide ongoing assistance and ensure smooth implementation.