Staffordshire Chambers of Commerce has partnered with tax specialists RSM to host an event explaining the benefits of salary sacrifice.
Here, Richard Travis-Nash, Employer Tax Associate Director at RSM, explains how the strategy can reduce business payroll costs, benefitting both employers and employees.
“Employers are about to be hit with an increase in National Insurance (NI) contributions from April and the level at which NI becomes payable is reducing. These two factors combined are pushing employer NI costs up through the roof.
As costs rise, businesses are looking for ways to save money without laying off staff or reducing hours – and salary sacrifice is the main way to do that.
Most employees are taxed on their earnings and are then subject to NI. Their employer pays NI on the salary as well, so if you do anything to reduce that salary there is going to be a tax and NI reduction.
Salary sacrifice works by an employee agreeing to reduce their taxable and NI-able pay in return for something which is neither taxable or subject to NI or is taxable at only a fraction of the salary which has been given up.
Savings get generated at both employee and employer level. While a salary sacrifice scheme won’t take away the full impact of the increase being introduced in April, it will help with it.
In terms of savings to be made, I tell employers to look at their employee pension contributions for a year and multiply that by 15 per cent. You could at least be looking at low tens of thousands of pounds in employer savings annually, but that very much depends on your overall costs.
Employees can expect to see an increase in their take home pay of either eight or two per cent depending how much they earn.
It is not overly complicated to implement a salary sacrifice scheme, but there are steps you need to make to ensure you take to do it justice. We can help people set it up and work with those who already have one in place to get the most out of it.
Pension salary sacrifice is the most efficient way to generate NI savings for both employer and employee. You might even see some tax savings for the employees as well.
This effectively works by converting employee contribution into extra employer contribution. An employee can sacrifice pay equivalent to their pension, and their employer takes that on. The employer pays all the money to the pension that used to go in but because it is coming from the employer, it is exempt from tax and NI.
Every employer will have employees in a pension, you have to offer a workplace pension by law. This makes pension salary sacrifice the best way to generate savings, but other ways include offering electric cars, which are taxable but it is at such a low level that that is also quite cost effective too.
The Chamber event has been organised to help explain salary sacrifice and factors to be considered when implementing a scheme.
I’m looking forward to being able to offer advice and providing guidance on the subject.”
The event takes place at Staffordshire Chamber of Commerce’s HQ at Festival Park, Stoke-on-Trent, between 9.30am and 11am on Tuesday, 18 March.
It is free for Chamber members to attend or £15+ VAT for non-members.
To find out more, or book a space, click here.
