Salary Sacrifice Disadvantages - Are Benefits Made Difficult for HR?

What are the Disadvantages of Salary Sacrifice?

Salary sacrifice disadvantages may be difficult to spot, as it is such a great employee benefit. However, there are in fact disadvantages of salary sacrifice schemes.

As anyone involved in HR and benefits probably knows, salary sacrifice is an increasingly popular employee benefit. They allow employers to enhance their employee benefits package for minimal (or zero) cost and hassle. However, as a benefit heavily regulated by tax legislation, it’s not always perfect. Here’s a bit of information about salary sacrifice, so that you can decide if the scheme is right for you. We’ll also show how to choose the best suppliers to ensure you find one that best suits your needs.

Salary Sacrifice is a contractual arrangement between you and your employees. The employee agrees to sacrifice, or exchange, earnings for a benefit. The benefit may be taxable and is always subject to employment law. However, with advantages such as corporate discounts, tax and NI savings, and low cost of finance for some services, it’s no wonder it’s on the rise.

Related Article: What Are The Advantages & Disadvantages Of The Salary Sacrifice Scheme?

Are Schemes Really No Cost?

Generally, yes. You’ll normally save money. A point to consider is the longevity of the workforce within the business. Employers main concern when it comes to salary sacrifice is leavers. In many cases should you have a ‘bad’ leaver, one who gives no notice, you’ll be exposed to another months payment and in some cases where goods are taken such as tech, cars or bikes you could have further costs if you choose a provider who does not offer leave protection as a feature of the benefit.

Do I Have To Offer The Scheme To All Staff?

No, some employees wouldn’t be eligible as salary sacrifice rules have certain restrictions, benefits such as cars have always been restricted to certain employees. Ensure that you choose a supplier who understands the potential employment law ramifications. You can’t reduce an employee’s salary below national living wage after all sacrifices, this rules out entry-level staff and some part-timers, as well as those already enrolled in numerous other benefits that will bring them below this limit. Also, with the 12-month minimum imposed on salary sacrifice, it’s not possible to offer a scheme to contractors.

Are Schemes Flexible?

Not really, and you need to be careful about this. If we take for example a gym membership via salary sacrifice if the employee has a long term injury a traditional gym membership would allow them to suspend membership, however with salary sacrifice this just isn’t possible. Agreements must be for a fixed period minimum of 12 months and can only be exited on certain conditions. Employees need to be aware salary sacrifice is a commitment for the period they agree to upon entry.

Do I Need To Continue The Benefit When Employees Are Off On Maternity?

Essentially, yes. This will be an issue when employees earnings fall below the living wage, but some suppliers will ensure you have no risk should this happen and offer maternity, paternity or long-term sickness cover to further reduce the risk for a company.

Is There Tax Reporting?

Yes, P11d reporting is crucial for benefits. Your supplier should, however, provide everything you need to pass on for this. Month to month you do need to identify the sacrifice on payslips so ensure your payroll system or provider can support this.

Are Schemes Admin Heavy?

They can be if you choose the wrong benefit provider. You need to handle payroll deductions, supplier payments and P11d reporting as a minimum. It’s possible to choose a supplier that handles any changes directly with employees and provides all the P11d information, removing business involvement from the process as much as possible.

Salary Sacrifice comes with many benefits, including increased employee retention and improved productivity within a business, but it’s very important to choose benefits and providers that work in a way that aids a business rather than hindering it. A benefit should absolutely be not only for employees but for the business.

Learn More About Salary Sacrifice Cars

If you have any more questions or would like to discuss with our team how this is applied to cars, and how Fleet Evolution can boost both green credentials and employee engagement, please get in touch with our team on 0300 302 0626.

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