Salary sacrifice can be an efficient, cost-effective method of paying for employee benefits. An employee agrees with their employer to give up part of their salary. In return, the employer provides a non-cash benefit.
With the lower salary, both employers and employees can save on National Insurance and income tax. You can then use this money to increase pension contributions and grow its value over time. Salary sacrifice lets employees pay the same amount but spend less money. They can also pay more without increasing their costs.
Five considerations that can help you implement salary sacrifice successfully
To start or improve salary sacrifice in your organization, it can be useful to learn from others. To get the most benefit for everyone, think about building a business case. Also, consider support structures, assess provider readiness, evaluate employer savings, and discuss how you share changes.
1. Build the business case
First, it is important to predict the benefits of salary sacrifice accurately. Remember to include an allowance for any employees who may choose to opt out. You should set aside some of the potential savings. This will help cover the cost of resources needed to implement the changes correctly.
2. Appoint appropriate support
Consider if the business has sufficient time and expertise to:
- Manage the transition project
- Build and deliver appropriate communications
- Deal with employee queries
If you’re unsure of your capabilities, it may be most efficient to outsource the process to a consultant with experience of managing similar projects.
3. Assess the pension provider
Check whether the pension provider can process contributions by salary sacrifice. Is the current pension proposition attractive to employees? Consider whether the implementation of salary sacrifice also provides an opportunity to upgrade the workplace pension scheme.
4. Decide how you’ll allocate the employer National Insurance savings
Consider the options around the optimum use of the employer National Insurance savings. No matter how the employer splits the savings, employees can also gain from the scheme. They can receive higher take-home pay.
5. Communicate
Make sure you inform employees that the workplace pension arrangements are being reviewed. It may be appropriate to survey employees to gauge their opinion on any proposed changes. This gives employees time to understand and accept changes, which can then support a smoother transition.
Talk with your consultant about the best way to share the changes. Remember, different people in your workforce may prefer different types of communication.
Is salary sacrifice right for your organisation?
When a business has limited funds, it can be difficult to find and retain skilled workers. In such cases, salary sacrifice can be a good way to save money.
Working with an experienced employee benefits consultant makes the transition and ongoing management easier. This helps you stay compliant with any new laws.
