A win-win solution to employee reward

There’s no denying 2020 was a tough year for all business owners. And that looks set to continue, at least in the short term. We’re sure, like us, your employees’ dedication, hard work and flexibility has been essential. We also understand that you may not be able to reward your employees for all their efforts. One solution that could benefit you and your employees, is offering salary sacrifice pensions.

What is a salary sacrifice?

A salary sacrifice is when an employee agrees to receive a benefit instead of receiving money. The employee “sacrifices” their money to receive a benefit. This must be reflected in the employee’s contract and isn’t designed to change often.

What do you mean “tax-free”?

You want to reward your employees but you don’t want to increase the tax you pay or the tax your employee pays. By offering salary sacrifice pensions, your employee maximises their reward and it costs you, the employer, less.

For example

When an employer pays an employee money, the employee pays income tax and national insurance, and the employer pays 13.8% national insurance.

Under a successful salary sacrifice arrangement, the employee does not pay income tax or national insurance and the employer does not pay national insurance on the amount sacrificed.

For every £100 an employee sacrifices each month, the employer saves £13.80 that they would have paid in national insurance. It also reduces the income tax and national insurance the employee would pay on the £100.

How does it work for pensions?

Employers are required to automatically enrol employees into a pension. But the amount contributed may not be enough for the retirement employees would like. Salary sacrifice offers an easy tax-free way to boost their pension savings. Salary sacrifice pension payments can be a one-off bonus or an ongoing amount every month.

Is it much work?

The great news about a salary sacrifice arrangement is that it’s not meant to change often. It just continues every month, which is less admin work. You can pay the salary sacrifice into the company’s automatic enrolment pension scheme. Then you don’t change the number of payments you make each month, saving time and money. It couldn’t be simpler!

How do I set up a salary sacrifice?

The first thing you need to do is discuss salary sacrifice with your employees. A salary sacrifice, whether it is a one-off bonus or an on-going amount, needs to be agreed in writing. Salary sacrifices might not always be beneficial to low earners. We can work with you on an implementation plan, whether that be written communications for your employees, a webinar to outline the proposition and of course, completing the administration tasks on your behalf.

Get in touch if you would like to set up a salary sacrifice pension scheme or find out how it could work for your business. We’re keen to support our clients and help you reward your employees, especially after 2020!