You may have heard of salary sacrifice schemes before. But what exactly are they? And how do they work?
A salary sacrifice scheme is a contractual agreement between and employee and employer in which the employee aA salary sacrifice scheme is a contractual agreement between and employee and employer in which the employee agrees to have an amount of their salary taken each month in exchange for a non-cash benefit. Benefit schemes allowing salary sacrifice can include cycle to work, ultra low emissions vehicles and certain defined contribution pensions.
One of the greatest advantages of these schemes is that they allow employees to save on tax and national insurance contributions. This can also allow the employer to save on national insurance costs and in some cases, save on their employees salaries too, allowing both parties to benefit.
The employee tends to agree to a monthly reduction in the salary in exchange for the benefit, in effect paying for said benefit with their pre-tax earnings on a monthly basis.
In effect, this allows an employee to get their non-cash benefit for less than they may do elsewhere due to the tax savings and spreading the cost.
What are the employee advantages of salary sacrifice?
- Potential savings of up to 42% for a higher rate taxpayer
- Spread the cost of the benefit, typically over a 12 or 18 month period
- No credit checks
- All the advantages of having the non-cash benefit in the first place
Cost efficiency for employers
Salary sacrifice doesn’t just benefit staff, but it can also be a great benefit for the employer. Often what a business saves in national insurance when employees take up the scheme can cover the cost of providing the schemes in the first place. This makes schemes incredibly cost effective when popular with employees.
Introducing salary sacrifice to your employees
Here at MyBenefitsZone, we provide a range of employee benefits. For more information, contact us today and we will be happy to help.