Salary Sacrifice is offered by some employers as a means for their employees to receive increased pension scheme contributions.
It is not an effective way of saving for everyone so it is important it is well communicated and understood by all employees before making the decision to revert to salary sacrifice as an alternative way of making pension contributions
Employees sacrifice part of their salary. The amount being sacrificed is paid into an employee’s pension plan directly by you the employer, rather than being paid as a personal pension contribution.
As a result the employee’s salary is deemed to be lower and both you and your employee pay less National Insurance Contribution (NIC). As part of the salary sacrifice deal the employer might pay none, some or all of their NIC saving into the employees’ pension along with the employee’s sacrificed pension contribution.
As an example:
An employee earns £30,000 a year and decides they want to salary sacrifice £1,000. Their new salary is £29,000, with the employer paying £1,000 to their pension plan. Both the employer and employee pay less NIC because the salary is deemed to be lower.
The percentage of NIC saving the employer pays is defined by them as part of their salary sacrifice offer. It could be anything between 0% and 100%.
The main employee advantages are:
The Disadvantages (to employees)
Salary sacrifice results in the HMRC recognising you have a lower salary. This could affect the following:
Further Salary Sacrifice Guidance
HM Revenue and Customs publishes some information and guides on Salary Sacrifice. These guides go into more detail into the effects of such an arrangement on state entitlements such as maternity pay, minimum wage, tax credits and other benefits. These guides can be found on their webpage here.
What do Quest Financial Solutions do for you?
Before making any decision on salary sacrifice you should receive professional independent advice, should you make a decision without seeking advice on the basis of this article then Quest Financial Solutions do not accept any responsibility for your actions.