In a tough economic climate employees are looking for help with the cost of living wherever they can get it, and increasingly, employers are acknowledging their duty to provide this support. But then things are tough for businesses too, so creative and innovative solutions are the way forward and an increasingly popular one is a salary sacrifice scheme; a mechanism for creating benefits for the employee, but also the employer.
Here is our Complete Guide To A Salary Sacrifice Scheme with everything you need to know…
What is a salary sacrifice scheme?
A salary sacrifice scheme is a voluntary initiative set-up by an employer, whereby an employee’s salary is reduced by a specified amount in return for a non-cash benefit. The terms of an employee’s contract will be amended to cover this new arrangement. A salary sacrifice scheme must be entirely voluntary and an employee can opt into it at any time, they can also have the amount of salary that is sacrificed amended to reflect lifestyle changes, such as a divorce, a marriage or if a partner is made redundant or becomes pregnant. An employer must also ensure that any portion of salary taken from an employee does not reduce their salary below the minimum wage.
When an employee decides to opt into a salary sacrifice scheme the non-cash benefits on offer from the employer must be made clear and the employee can subsequently choose one. The employer should also ensure the employee receives information and advice as to how the proportion of salary they are losing will affect things like pension, sick pay and holiday entitlement etc. In most cases an employer will arrange information workshops which employees are free to attend, and in which the various benefits and effects the salary sacrifice scheme will have can be fully explained before an employee commits to it.
Why should an employee choose a salary sacrifice scheme?
Willingly reducing your salary at a time when every penny counts may seem like a strange thing to do, but there are numerous benefits to doing so, not least because of the non-cash benefit you receive in return. The benefits which qualify for the salary sacrifice scheme usually include:
The range of benefits offered is entirely down to the employer, but in most cases they represent a benefit which the employee will not be able to find elsewhere – at least not in such a financially beneficial format – and be able to access so conveniently.
However, the most appealing element of a salary sacrifice scheme is that the portion of salary is taken from an employee’s gross pay, but as of April 2017, only in the case of five specific benefits, all of which are among the most popular types of schemes. This means that the employee will be liable to pay reduced income tax and national insurance contributions, and hence, in real cash terms they will be better off if they opt to choose one of the following benefits:
So if an employee chose one of these benefits they would also pay less tax and national insurance. Though of course, the ultimate decision remains whether the non-cash benefit is worth as much to the employee as the portion of salary being given up. This is not always a case of swapping one figure for another, but can involve a balance of consequential lifestyle benefits in addition to cash savings.
Who is a salary sacrifice scheme aimed at?
Anyone within an organisation can apply for a salary sacrifice scheme and with many schemes there is no credit check involved either. And the beauty of a salary sacrifice scheme is that you can choose the non-cash benefit that best suits you. And because the scheme is voluntary you can weigh up the options and work out the true value of the benefit. So for example:
These benefits all qualify for the reduction in tax and national insurance, but there are several other benefits which might provide the lifestyle enhancement that you are looking for, and which can therefore justify the reduction in salary you would see.
Why employers should offer a salary sacrifice scheme
While the headline benefits of a salary sacrifice scheme are financial, there are other human resources benefits which an employer should bear in mind when considering whether to offer such a scheme in the workplace.
In today’s business climate an employer needs to offer attractive packages to tempt the best employees, and salary sacrifice schemes come into that equation. Offering such a scheme demonstrates that the employer is considerate and is serious about their commitment to employees’ welfare. This can offer the employer a significant advantage in attracting and retaining the best employees.
Furthermore, if an employer offers a salary sacrifice scheme, it has to be available to everyone across the organisation. In the past, if an employee was offered a company car, for example, it was seen as a status symbol which only elite performers were offered. This promoted exclusivity rather than equality. With a salary sacrifice scheme this benefit is available to everyone and hence demonstrates diversity and inclusivity, this in turn can boost morale and productivity and ensures the employer has a happy, loyal and motivated workforce.
What are the benefits of a salary sacrifice scheme?
A salary sacrifice scheme can be mutually beneficial for both the employee and the employer. This is because for the employee:
For the employer there is a slightly different set of benefits:
Which is the best salary sacrifice scheme to choose?
An employer has to treat all their employees on equal terms, and as such, everybody has different needs and circumstances and hence, there are advantages in all the non-cash benefits which can be offered by an employer. However, the five benefits which qualify for the gross pay reduction and hence the reduced tax and national insurance contributions, as outlined above, are clearly front-runners when assessing the best salary sacrifice schemes.
Within this group, the option to access a leasing deal for a low-emission vehicle is generally considered to be the best option for an employee, and for a number of reasons:
Given the comprehensive range of all-round financial and lifestyle benefits of a salary sacrifice car scheme, it is widely accepted as being the best such scheme available.
Why you should choose a salary sacrifice car scheme through Pink Salary Exchange
If you have opted for a car leasing agreement because it is the best salary sacrifice scheme available, then there are several more reasons why you will benefit if you sign-up to a salary sacrifice car scheme with Pink Salary Exchange. Here’s how you can benefit:
In addition to all these benefits for the employer, we are confident that the easy set-up costs and administration, coupled with the national insurance reductions, means that our salary sacrifice car scheme is cost neutral for the employer, while providing a raft of human resources benefits also.
What should I do next?
The Pink Salary Exchange salary sacrifice car scheme could not be simpler and access to it is fast and straightforward for both employers and employees.
Click here to find out more and register today!