Your workforce will be one of the biggest costs facing your business. You need to make sure you’re managing your employment tax risk effectively. We can help you identify ways to create efficiencies and attract or retain the top talent in your sector.
Our tax team support clients of all sizes with their employment tax, providing personable, proactive advice that will help you meet your requirements and make the most of your opportunities. Here we take a look at salary sacrifice as a way of reducing employment costs.
EMPLOYMENT TAXES – MINIMISING COSTS
Controlling costs, especially in the current economic climate, is at the top of the agenda for many employers.
High on the priority list is also how to attract and retain staff. How benefits offered meet the expectations of staff, where their expectations change over time. Here we take a look at the use of salary sacrifice arrangements to ensure compliance and minimise your employer costs.
SALARY SACRIFICE
Salary sacrifice as a concept is nothing new. Many employers who wat to improve employee benefits, while managing costs will look to salary sacrifice schemes as an ‘easy-win’ to support their corporate objectives.
The most popular and cost-efficient benefits to offer via salary sacrifice are:
- Pension contributions
- Electric cars
- Holiday trading
- Cycle to work scheme
PENSION CONTRIBUTIONS
The introduction of auto enrolment for workplace pensions some years ago, brought the topic of retirement to the top of employee considerations. To receive the savings that employee benefits can achieve, it needs to be provided by the employer in a particular way. Enter salary sacrifice.
By simply altering the way in which employee pension contributions are paid, employers can reduce their costs while also providing an attractive benefit for current and prospective employees.
HOW DOES IT WORK?
Employee pension contributions are deductible for income tax purposes but are not deductible for NIC purposes. So, both employers’ and employees’ NIC is due on the pay that is used to pay into the company pension scheme as an employee pension contribution.
On the other hand, employer pension contributions do not attract income tax or NIC.
So, by agreeing with an employee to exchange part of their salary (that would’ve been used for making employee contributions) for an additional employer pension contribution, savings are made for both the employer and the employee.
WHAT ARE THE PRACTICALITIES?
There are of course a number of considerations that an employer should consider before offering salary sacrifice. Such as:
- Does salary sacrifice benefit all employees?
- How does it affect company and state benefits?
- How will employees react to salary sacrifice?
- What are the ways to maximise / encourage take up?
- Do the benefits (financial and non-financial) outweigh the implementation costs?
WHY NOW?
As mentioned before, salary sacrifice as a concept is nothing new. HMRC has changed the way in which some benefits can be offered, which removed most of the tax and NIC advantages. However, there is still a small list of benefits (mentioned earlier) that can still generate savings and benefit employees.
With the increase in employer costs over the years, such as the apprenticeship levy, auto enrolment and now the health and social care levy since April 2022 onwards. Now is as good as any time to consider offering these benefits to employees if you do not already do so.
