In the ten years or so that salary sacrifice schemes have been widely available, they have grown enormously in popularity. And the benefits of them have become more defined and more tangible as tax rules have changed, and particularly today, in 2022, when the cost of living crisis dictates that families need to maximise any kind of financial benefit they can find.
Of course the main benefits of salary sacrifice schemes focus on the employee, as they are receiving the benefit and the whole scheme and its mechanism is based around them and their work arrangements. But there are various benefits to the employer also, and furthermore, the attractions of a salary sacrifice scheme to the employee also have a consequential benefit to the employer. This knock-on effect could be considered to benefit the employer twice over, and hence explains why salary sacrifice schemes could well be the ultimate employer benefit. Let us explain:
A salary sacrifice scheme works by offering the employee the opportunity to use a portion of their salary in exchange for a lifestyle benefit. This could be a bicycle to take part in a cycle-to-work scheme, healthcare vouchers, mobile phones, a pension top-up or a contribution towards a zero-emission electric vehicle (EV).
Ultimately, the employee benefits by getting something they want in an affordable way, in that they can spread payments as they wish through the portion of their salary they choose to sacrifice. Financially, the employee benefits because the salary reduction is taken from their gross pay, not their nett pay, so they pay less income tax and national insurance, and hence their take-home pay increases (minus the portion they have sacrificed of course). This only applies for some benefits and not all, which include employer-provided pension saving and pensions advice, contracted childcare and childcare vouchers, workplace nurseries, ultra-low emission (ULEV) company cars and cycle-to-work schemes.
While the take-home pay is the headline benefit for the employee, the employer also benefits from this as they pay less corporation tax and their national insurance contribution for that employee is also reduced. This kind of financial saving can help with cashflow and can be put towards more pressing areas within the business. But there are a number of other indirect benefits for the employer too:
Ultimately, a salary sacrifice scheme is a great benefit for the employer because they are seen to be supporting employees through rising costs and inflation but also promoting a good work-life balance. In turn this generates attachment and loyalty and perhaps also a higher productivity rate through good morale and motivation. Indirectly, the employer also benefits through good PR in supporting environmentally-conscious behaviours and its general perception as a mindful, considerate and respectful employer.
So if we consider if a salary sacrifice scheme is the ultimate benefit for the employer, then yes, they benefit financially, but they also benefit twice over from the same elements which benefit their employees. And the end result is a healthy and happy workforce, which gives the business the best opportunity to thrive.