What is a salary sacrifice?
Essentially, a salary sacrifice is an agreement between the employer and employee whereby the employee gives up a portion of their salary in exchange for a non-cash benefit, such as higher pension contributions, financing company cars, childcare, training courses, laptops or even mobile phones.
With some salary schemes, the salary that has been given up is not subject to National Insurance contributions or tax, such as:
- Childcare provided by the employer.
- Financing cars, including company cars, that are ultra-low in emissions.
- Pension schemes.
- Training courses.
This has the knock-on effect that although employees are receiving less in their pay packet, they are also paying less tax, and less National Insurance contributions for the employee and the employer.
Some salary sacrifice schemes are not eligible for reduced tax benefits so it is worth investigating before agreeing to give up a proportion of the salary. It may also affect other entitlements, such as maternity or paternity pay.
The most common salary sacrifice schemes
There are a wide variety of salary sacrifice schemes that include a range of benefits. These are some of the most common benefits, and some of them could be tax-free.
- Company cars – one of the most popular salary sacrifice options. Many employees opt for ultra-low emission, hybrid and electric cars to take advantage of tax benefits.
- Childcare – with more families having both parents working, and single parent families, employer-funded childcare, such as vouchers, is extremely advantageous.
- Training courses that are work-related – a great opportunity to further careers and fund re-training.
- Employer pension contributions – looking ahead to retirement, additional contributions to your pension will provide a great boost.
- Cycle to work schemes – many employees are choosing to cycle to work in recent years, for a variety of reasons, not least the benefits provided by employers.
- Providing car parking close to the workplace – as more towns and cities become built up, the ease of finding cost efficient parking becomes difficult. A salary sacrifice that supports and provides car parking is a popular benefit.
However, a salary sacrifice isn’t for everyone. Before agreeing to any salary sacrifice scheme, take the time to consider whether it is of benefit and any impact it may have on other financial aspects, such as tax credits, mortgages or loans.
For many, the first step in looking for a new job is searching online, there are plenty of great job opportunities available. At Atkinson Moss, we consistently work to listen to our clients and candidates, adapting to ever-changing needs, and will continue to do so in 2020.