Employer Benefits

Salary Sacrifice schemes and how they work

Save substantial amounts on your Class 1 NI contributions while your employees save on their Tax and NI

How you usually pay your employees

  • The usual way of rewarding employees is through their wages. 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

  • For example an employee on the Workplace Nursery Scheme pays £1000 a month for their childcare at a nursery
  • They would save Tax and NI on the whole nursery fee which would give them a saving of £245 a month!
  • This provides the company an NI saving of £53 per month!

* Please note that savings are determined by the the type of benefit and the Tax and NI rates of the employee

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