A salary sacrifice scheme is an arrangement between an employer and employee, where the employee will exchange a portion of their pensionable pay for non-cash benefits. Benefits can include vouchers for childcare, car hire, home computers and gym memberships. To create a salary sacrifice scheme a request must be submitted to your employer, and a review will take place to determine if you qualify. An agreement must be made between both the employer and employee, on what the cash value of the benefits is worth, as it must compensate for the loss of income.
A common arrangement is when an employer will offer the employee an opportunity for a sum of their money to be taken from their gross pay before tax is deducted. This will then be used to pay for the benefits mentioned above. The employee may receive a tax benefit, as their take-home pay will therefore be lower. The tax benefit will only operate if the cash payment is exchanged for any of the benefits offered by the salary sacrifice schemes.
Although a salary sacrifice scheme can be used for many benefits, the most popular type involves additional pension contributions from your employer. If you’re exploring ways to boost your pension pot, a salary sacrifice pension scheme is one of the most common options. It is a great way to make your pension saving more tax-efficient and could mean your take-home pay increases. Your salary will be reduced but your employer will pay the difference directly into your pension, as well as their contribution to the scheme.
By arranging a salary sacrifice you will be earning a lower salary in the end, which means that both you and your employer will then pay lower National Insurance contributions so that your take-home pay monthly will end up being higher.
An arrangement as such will be reviewed every 12 months to determine its necessity based on lifestyle and financial changes, which can result in the scheme being renewed or removed entirely.
If salary sacrifice schemes are something you're not doing in your business, it may be something to consider. If employees feel as if they’re receiving benefits from their employer it could be a way of increasing productivity. When employees feel seen and understood by their employer it increases trust, leading to a better working relationship.
The Great British Workplace Wellbeing Awards will be hosting sessions on March 2nd 2022 with talks around Salary Sacrifice Schemes and how they can benefit your employees.
12:20-13:00 - Salary Sacrifice Schemes; What are they and how can they support the needs of your employees?
Natalia Peralta Silverstone | Head of Propositions, Octopus Electric Vehicles