Jargon Buster: Salary sacrifice

There are benefits to 'salary sacrifice' schemes.

by MT Staff
Last Updated: 09 Oct 2013

In recent years, employees have often been asked to defer pay rises or reduce holidays in order to safeguard their jobs, so when they hear about so-called 'salary sacrifice' schemes emanating from HR, who can blame them for imagining a further shrinking paypacket?

For once, that's not the case. Salary sacrifice arrangements can actually put more cash into the hands of employees and employers.

Salary sacrifice schemes are a means of providing government-approved perks, free of tax and national insurance. Childcare vouchers or cycle-to-work schemes can be paid for out of gross pay, saving employees tax and national insurance contributions on the value of the benefit.

Even employers benefit, as they save on NI too: employer NI contributions are reduced because employees' gross salaries are lower.

But the Government has been fickle over which perks it approves. Salary sacrifice on holiday pay schemes, home computers, mobile phones and workplace canteens have all been scrapped.

Predictably, although employers value schemes once implemented, 46% are put off doing so because of complicated rules from HMRC, according to a survey by financial adviser AWD Chase de Vere.

More recently, growing numbers of staff have been enjoying tax breaks on their pension contributions through salary sacrifice - the latest trend is salary sacrifice company cars. So savvy employers might want to look at this cost-effective (if slightly complicated) way of rewarding people.

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