January 6, 2025

Unlock the Benefits of Salary Sacrifice: A Win-Win for Employees and Employers

Unlock the Benefits of Salary Sacrifice: A Win-Win for Employees and Employers

Salary sacrifice is gaining momentum as a strategic tool for employers and employees alike. This arrangement allows employees to exchange part of their salary for non-cash benefits, such as additional pension contributions, cycle-to-work schemes, or a company car. It’s not just a financial tactic—it’s a way to maximize efficiency and savings for both parties.

How Does Salary Sacrifice Work?

Salary sacrifice involves redirecting a portion of an employee’s gross salary toward non-cash benefits before income tax and national insurance contributions (NIC) are applied. For example, employees can use it to boost pension contributions or exchange bonuses for extra benefits.

The advantages are twofold:
• For employees: Increased take-home pay due to reduced tax and NIC deductions.
• For employers: Savings on employers’ NIC contributions.

Why It Matters More After the Budget Changes
Starting April 6, 2025, significant changes are coming:
1. Employers’ NIC rates will rise from 13.8% to 15%.
2. The NIC threshold will lower from £9,100 to £5,000.
These changes mean higher employment costs for businesses, but salary sacrifice can be a powerful way to mitigate these increases.
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Real-World Savings: A Case Study
 
Here’s how salary sacrifice impacts an employee earning £30,000 annually:
Before Salary Sacrifice           After Salary Sacrifice
Gross Salary: £30,000                Gross Salary: £28,500
Income Tax: £3,486                    Income Tax: £3,186
NIC: £1,394.40                              NIC: £1,274.40
Net Pay: £23,919.60                    Net Pay: £24,039.60
Take-home increase: £120/year
From an employer’s perspective, implementing salary sacrifice can reduce annual costs per employee by £225 while maintaining equivalent pension contributions.

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A Brighter Future for Pensions
Post-salary sacrifice, the same £2,400 pension contribution is achieved, but the breakdown shifts:
• Employees no longer need to contribute directly.
• Employers cover the entire amount, benefiting both parties.
For organizations with 200 employees, the savings scale dramatically:
• Employees collectively save £45,000 annually.
• Employers save an additional £24,000 annually.
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Implementation Matters
To unlock these benefits, it’s crucial to structure and communicate salary sacrifice arrangements effectively. A well-executed plan ensures compliance and maximizes savings for all stakeholders.
Aetas Partners Limited offers expert guidance and free reviews of your current arrangements.

Ready to enhance your employee benefits? Get in touch today.

 
 
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