Salary Sacrifice – What Benefits Does It Give To Both Employers And Employees?

Salary Sacrifice – What Benefits Does It Give To Both Employers And Employees?

Salary Sacrifice

Salary sacrifice benefits are one of the best ways for employees to save money and get the things they need in their everyday life. It allows them to take a part of their gross salary as an alternative to cash and use this to pay for things such as childcare or additional holidays. This is why it is also beneficial for employers as a lower wage bill also reduces the company’s National Insurance Contributions (NICs). Keep on reading to discover more.

Essentially, salary sacrifice arrangements are facilitated by agreements or changes to terms and conditions of employment entered between the employee and employer whereby the former agrees to take part of their gross salary in the form of employee benefits that are equal in value to the amount exchanged.

Benefits for Employees

One of the key benefits of salary sacrifice is that employees will not pay any income tax or National Insurance on the product or service they get as compensation. In the long run, therefore, their personal tax may reduce by as much as 42% or in some cases even more on the amount they sacrifice. Moreover, employees have the added benefit of being able to spread the cost or purchases by paying for these directly from salary over a set period of time.

Common options employees choose include salary reductions for bike to work schemes, pensions, holidays, shares, childcare or tangible assets such as mobile phones, computers and even cars. Of course, there are some restrictions to the things they are eligible for but entitlement would normally be made very clear on their benefit portal.

Benefits for Employers

For employers, salary sacrifice is beneficial too. The employer can achieve considerable savings in NICs. Since employers are required to pay NICs on salaries, but not on pension contributions, it follows that the NICs will be lowered due to lower salaries. Salary sacrifice arrangements are also an excellent way for employers to widen their benefit schemes with relatively low administration and minimal cost.

In conclusion, salary sacrifice schemes are clearly beneficial to both parties. Whenever entering in to a salary sacrifice arrangement it is always very important to seek professional tax advice and ensure that the provider adheres to a competent and compliant process.