Salary Sacrifice Benefiting Employers and Employees

The cost of employing an individual includes both employers and employee’s national insurance contributions (NICs). Employers pay 13.8% on the salary paid and the employee pays 12% after an initial NIC free allowance.

As employers now have a duty to make pension contributions for their employees it may be worth employees considering salary sacrifice to make their contributions to the pension.

Under a salary sacrifice arrangement the salary is reduced by the pension contribution to be made, there is no NIC for the employer or for the employee on the salary forgone. The employer then makes the total pension contribution – both the employers and the employees contributions.

For example

Alex’s salary is £38,000. The minimum employer contributions to Alex’s pension amount to £1,140 and the employer already receives NIC relief on this of £157.32. If Alex decides to salary sacrifice her own minimum contribution of £1,900 she will save the NIC on this contribution of £228.00 and because the salary has reduced the
employer saves an additional 13.8% or £262.20.

Speak to us to find out more about salary sacrifice and if it will benefit your workplace.