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
Factors to Consider Before Taking a Salary
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
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.
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 post Salary Sacrifice: A Brief Guide appeared first on .