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What is the salary sacrifice scheme?

Salary sacrifice is a government-backed scheme that reduces an employee’s cash pay in return for various types of non-cash remuneration of equivalent value – with tax savings for both employee and employer.

For new salary sacrifice schemes, arrangements include paying for pension contributions, childcare, cars, cycle-to-work, parking, learning, private health and new technology. The list was more extensive prior to government changes in April this year but in general, schemes which were joined prior to that date still offer the previous benefits to the employees who participated in them.

Not all workers qualify, as it isn’t permitted for salary sacrifice to take an employee’s cash earnings below the National Minimum Wage (note table on this page).

For every pound of salary replaced by the payments, you will save employer’s National Insurance Contributions of 13.8%. You could use the tax savings to pay for the administration of the scheme, or as a contribution to other employee benefits. Alternatively, you could pass on the benefits to your employees in full, topping up the value of the benefits enjoyed under salary sacrifice.

When an employee chooses to opt in or out of a salary sacrifice arrangement, it is your legal obligation to alter their contract with each change. Employee contracts must be clear on cash and non-cash entitlements at any given time.

Just Payroll Services can administer salary sacrifice payments as part of our wide range of payroll services.