Salary sacrifice schemes are offered as part of a pension scheme, where employers can offer their employees the opportunity to ‘sacrifice’ a small portion of their pension for other non-cash benefits, such as childcare vouchers, company cars and, in more popular cases, additional pension contributions from the employer.
What are the advantages of salary sacrifice schemes to employers?
There are many benefits associated with salary sacrifice schemes for businesses operating in a wide range of industries, including trade, retail, finance, construction, insurance and marketing:
- Savings on NI contributions – Employers pay National Insurance contributions towards an employee’s salaries, and so the higher the salary, the higher these costs will be. By reducing the salary as part of the scheme, these payments will be reduced.
- Improved employee health – by employees taking on benefits such as cycle to work schemes or gym memberships, health and wellbeing can be improved, and absences reduced as a result.
- Easy set up – with the right provider, the set up of salary sacrifice schemes can be seamless, allowing employers to successfully run such schemes for their employers.
What are the disadvantages of salary sacrifice schemes?
As with any scheme, there are always some drawbacks to be aware of:
- Leavers risk – there may be a chance that you are exposed to leavers risk, however, many schemes will have some protection in place should an employee leave the business while on the scheme.
- Employees falling below minimum wage – should an employee fall below minimum wage, such as when on long term sick and you are unable to deduct the salary for the scheme, you may still be responsible for paying for the benefit, such as the company car.
If you need help with salary sacrifice schemes and you are based in the East Midlands, such as in Nottingham, Leicester, Loughborough or Derby, get in touch with Michael Reed Wealth Management today.
