Salary Sacrifice: A Brief Guide

It is simply a way for employers to offer more benefits to their staff

Salary sacrifice schemes are becoming increasingly popular for both employers and employees. It is simply a way for employers to offer more benefits to their staff. However, it is entirely up to the employees; they can choose whether or not to take them up on their offer. Read on for your guide to salary sacrifice schemes.

What is a Salary Sacrifice?

A salary sacrifice scheme is exactly as it sounds. It is an agreement between employer and employee; the employee agrees to give up a portion of their salary each month to access some more benefits. Sacrificing part of your pay each month can be a sound financial decision, despite initially being met with scepticism. Salary sacrifice options vary between employers as they have to choose to opt into a scheme, so be sure to check with your bosses what schemes they offer, if any.

How Does it Work?

In return for a small percentage of their salary, an employee is provided with a non-cash benefit. If an employee decides to enter into a salary sacrifice scheme, then because their overall pay will be lower going forward, they often have to pay less tax and national insurance. Employers also pay less national insurance on your behalf too; these savings may or may not be passed back to the employees. It is up to the discretion of the employers.

Factors to Consider Before Taking a Salary Sacrifice

As mentioned above, agreeing to a salary sacrifice lowers an employee’s earnings, affecting their entitlement when it comes to paid leave or even affecting things like mortgage applications. In addition, it can also affect pension contributions or state benefits for the employees. Therefore, it does come down to the employer to be transparent on how a salary sacrifice can impact other aspects of their working life; however, employees also need to do their due diligence when to comes to educating themselves.

Examples of Salary Sacrifice Schemes

The types of salary sacrifice schemes that employers offer are sometimes self-serving. It is all about making it easier for an employee to do their job. For example, company cars are a popular salary sacrifice scheme; an employer who wants to offer this should look up Pink Salary Exchange; they are the leading car salary sacrifice scheme in the UK. Childcare vouchers, cycle to work schemes, parking spaces, additional pension contributions, or work-related training schemes are also common salary sacrifice schemes. 

Considerations

While entering into a salary sacrifice is a choice, and it goes towards something that you want, there are some things to bear in mind. Firstly, as mentioned above, it can affect an employee’s entitlements when it comes to things like maternity, paternity, or sick pay. Although you may also be able to claim more tax credits. Depending on the policies of the employer, salary sacrifices can also affect bonuses, pay rises and pension contributions. Finally, it is not a realistic option for those on low incomes either, as it could bring their salary below the national minimum wage.

In Conclusion

Salary sacrifice schemes can be incredibly useful both to employers and employees. In most scenarios, it is a win-win. However, it is recommended that anyone looking to enter into or implement one of these schemes, as the case may be, should do their research beforehand to work out whether it is a good option for them financially.

The British Institute of Recruiters is the Professional Body operating The Recruitment Certification Scheme

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