{"id":657,"date":"2016-08-05T12:08:32","date_gmt":"2016-08-05T11:08:32","guid":{"rendered":"https:\/\/lancasterclements.co.uk\/?p=657"},"modified":"2016-08-01T15:09:43","modified_gmt":"2016-08-01T14:09:43","slug":"salary-sacrifice-and-auto-enrolment","status":"publish","type":"post","link":"https:\/\/www.lancasterclements.co.uk\/salary-sacrifice-and-auto-enrolment\/","title":{"rendered":"Salary sacrifice and Auto Enrolment"},"content":{"rendered":"
Salary sacrifice takes place when an employee gives up the right to part of their remuneration in return for the employer providing the employee with some form of non-cash benefit.<\/p>\n
As announced in the 2016 Budget, the government is considering limiting the range of benefits that attract income tax and National Insurance advantages when they are provided as part of a salary sacrifice arrangement. However, the government\u2019s intention is that pension savings, childcare and health related benefits will continue to attract these reliefs. One option therefore is that employees sacrifice part of their salary in return for the employer paying a sum to a registered pension scheme for the employee\u2019s benefit.<\/p>\n
The recent Reed Employment tax case illustrated that it can be costly to implement a salary sacrifice scheme incorrectly. To be effective the arrangement has to reduce the employee\u2019s contractual right to cash remuneration. This requires two conditions to be met:<\/p>\n
In addition, the employee should not have the right to give up the non-cash benefit and revert to the higher cash salary within 12 months.<\/p>\n
In practice, the variation of the contract can be achieved by rewriting the contract, setting out the changes in a separate document attached to the contract or by giving employees an \u2018opt out\u2019 option. An \u2018opt out\u2019 clause would specify a time limit by which time employees would have to opt out of the salary sacrifice arrangement. Failure to do so would be regarded as an \u2018opt in\u2019. Employees would need to be fully informed of the proposals.<\/p>\n
It should be noted that the cash wage cannot fall below rates set in the National Minimum Wage and the National Living Wage following salary sacrifice. Salary sacrifice can affect an employee\u2019s entitlement to certain state benefits such as Maternity Allowance and Incapacity Benefit. Therefore consideration should be given to excluding lower paid employees from the scheme.<\/p>\n
Where salary sacrifice is implemented with a pension payment being provided by the employer then the employee will pay income tax and NICs on the lower cash salary. There is no charge to income tax or NICs on the amount of the pension payment made by the employer.<\/p>\n
The effect of using salary sacrifice for employee\u2019s pension payments would therefore be a saving of up to 12% for the employee and up to 13.8% for the employer.<\/p>\n
Example<\/strong><\/p>\n Using a salary of \u00a330,000 and 2016\/2017 tax rates. An employer contribution of 2%, employee contribution 4% before tax relief.<\/p>\n