Salary Sacrifice schemes and how they work
Save substantial amounts on your Class 1 NI amounts while your employees save on their Tax and NI

How you usually pay your employees

  • The usual way of rewarding employees is through their pay award. They work for you, and you pay them a gross wage which is then subject to Tax and NI charge, leaving a net wage.
  • The employees spend what money they have left after Tax and NI on whatever they like.

Salary sacrifice schemes, an alternative way to reward employees

  • Increasingly, employers are wanted to enhance the lives of their employees, a consequence of which is usually a more profitable business and happier business environment.
  • One way of bringing the benefit to your employees is using a mechanism called a salary sacrifice.
  • Salary sacrifices are normally for an agreed amount over an agreed period** and involves a variation to the employee contract, in writing

How the savings* are made

  • It really means what it says, the employee gives up part of their gross salary to receive a particular benefit that then does not attract Tax and/or NI charge.
  • The business quite often makes substantial Class 1 NI savings as well

 An illustration of how salary sacrifice schemes could work

  • An employee receiving £2000 gross, approx £1500 net after Tax and NI
  • After £200 of childcare fees paid to a nursery leaves £1300 for everything else, rent, food etc
  • Using childcare vouchers the employee sacrifices £200 before Tax and NI is applied
  • This leaves £1800 subject to Tax and NI charge, approx £1350 net wage plus a £200 childcare voucher
  • Effectively £1550 in net pay, an increase of £50 per month in take home pay
  • As an employer you also save 13.8% of £200, £27.60 of Class 1 NI relief

* Please note that savings are determined by the the type of benefit and the Tax and NI rates of the employee and changes to the exemptions due in April 2017***

** If an employee leaves your employment before the agreed term of payments is completed, a final salary settlement will be required.

*** From April 2017 benefits such as childcare, cycle to work, workplace nursery, pensions and cars of low emission will continue as normal with regard to salary sacrifice. Salary sacrifice will cease for any other benefit so many would become only efficient for employee NI

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