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Salary Sacrifice
There are many ways in which organisations can make savings through salary sacrifice.
Perhaps the most topical of these is the restructuring of current pension arrangements in order to take advantage of National Insurance Contribution (NIC) breaks afforded to employer pension contributions.
Employers and employees pay NICs irrespective of pension scheme membership. Employers pay NICs on employees' total earnings above a minimum level. Since 'A' day April 2006 employees' contributions are no longer subject to the old HMRC contribution limits.
It is therefore possible to achieve significant reductions in NICs by changing the contribution structure of the pension scheme. If employees 'sacrifice' salary (through flex, for example) instead of making employee contributions, then this has the effect of reducing NICs for both the employee and the employer. For example, you could make a 5 per cent employee contribution pension scheme non-contributory and reduce basic salaries to 95 per cent of their current levels. Broadly speaking, organisations have the potential to reduce their NIC bill by around 0.4 - 0.6 per cent of pension payroll by taking this approach. Equally employees might also see a reduction in their NICs.
In addition to pension, savings can also be made by introducing other benefits to staff, such as, Cycle to Work, canteen salary sacrifice and childcare vouchers. If you are thinking of putting in other salary sacrifice benefits, you may find a simple flex plan helps streamline the employee choice and administration - please see our section on Introducing Flex.
In each of the above cases, if an employee chooses a particular benefit, the employer no longer has to pay NIC on the salary used to purchase the benefit.
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