What is an Employee Salary Sacrifice Scheme?
Salary sacrifice, sometimes referred to as salary exchange, is an arrangement that employers may make available to employees who want to reduce their tax expenses. The employee reduces their earnings in exchange for a non-cash benefit such as increased pension contributions. Other non-cash benefits often offered are cycle-to-work schemes, mobile phones and bus passes.
The cost of the benefit comes out of pre-tax pay, therefore the employee doesn’t pay tax or national insurance on the salary that is sacrificed. The employer also doesn’t need to pay employers national insurance contributions on the sacrificed portion, so it is often seen as mutually beneficial.
Rewarding your employees through an employee sacrifice scheme can result in a more profitable business with more engaged, more loyal employees.
What Types of Employee Salary Sacrifice Schemes Exist?
Offering enrollment into a salary sacrifice scheme gives employees the opportunity to pay for a range of products and services via deductions from their monthly payroll. There are various benefits available to choose from which will help increase employee engagement. Many of the benefits available will increase the financial wellness of your employees by leaving them with more disposable income to enjoy.
Some of the benefits which can be paid for through an employee sacrifice scheme are:
- Pension contributions
- Cycle to work schemes
- Cars with ultra- low emissions
- Private medical care
- Buy & sell holidays
- Dining clubs
How do Employees Benefit From Enrolling in an Employee Salary Sacrifice Scheme?
By choosing to opt in to an employee salary sacrifice scheme employees benefit from services and goods with considerable savings. The deductions for these benefits are taken out of pre-tax pay which results in less tax and national insurance needing to be paid. Whilst the employee’s final take home pay may appear to be reduced, the savings which have been made on services and goods through the employee salary sacrifice scheme are greater than the deduction taken to cover the costs of them.
The financial benefits are not the only reward, there are also health and wellbeing benefits such as increased exercise by opting into a cycle to work scheme. The cycle to work scheme is a simple scheme that is valuable to employees and is one of the most popular and fastest growing employee benefits in the UK. It is cost neutral for employers and easy to implement. By opting into the cycle to work scheme there is also a reduction in commuting time and cost, and less worry regarding parking and congestion, not to mention the benefits of exercise for the overall health and wellbeing of your employees.
By reducing part of their salary and paying it directly to their pension, employees can reduce income tax and national insurance payments. As an employer you would also save on the employer contribution of national insurance, which some employers choose to pay directly into their employees pension which boosts their investment further.
At Staff Treats we have a salary sacrifice scheme which offers employers and employees discounted pricing and convenience with no hassle. Offer your employees the opportunity to save up to 50% at a selection of top UK restaurants. Offers include 2 meals for the price of 1. Enrolling in the dining club scheme offers the employee the opportunity to save money without sacrificing their lifestyle.
Buy and Sell Holiday Scheme
This scheme enables employees to buy or sell up to 5 days of their holiday allocation each year. Having flexibility around holidays encourages a good work life balance which increases productivity. If an employee chooses to buy an extra holiday through the employee sacrifice scheme, their salary will go down. If they choose to sell a holiday, their salary will increase. Generally more people will buy holidays than sell them therefore, an increase in wage costs is very unlikely. Further savings can be made through our discount portal where we have plenty of travel perks for employees to use.
It is important to note that if an employee decides to opt in to an employee salary sacrifice scheme it will require a change to their employment contract. If you wish an employee to join a scheme you must have the employee’s consent. Joining an employee up to the scheme without their consent would be a breach of contract. However, if the employee is notified of the change with a deadline to opt out and they do not opt out, this effectively means that the employee has agreed to the change.
There are some considerations which need to be made before implementing and offering an employee salary sacrifice scheme. Depending on pay grades, not everyone will be entitled to participate. If an employee’s salary would be taken below the national living wage as a result of a salary sacrifice, that employee wouldn't be eligible for the scheme as the shortfall in wages would need to be paid by the employer.
Consideration must also be taken for those employees who may not benefit from a reduction in gross earnings. There can be financial implications for anyone applying for a mortgage with a reduction in gross income. It can also affect any means-tested benefits or entitlements such as statutory maternity pay.
Offering benefits such as an employee sacrifice scheme increases employee wellbeing in the workplace which is vital in creating a happy, engaged and productive environment.