As anyone involved in HR and benefits probably knows, salary sacrifice is an increasingly popular way for 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 make an educated decision as to whether salary sacrifice is right for you and your employees, and how you can choose the best salary sacrifice suppliers to ensure you find one that best suits your needs.
Salary Sacrifice is a contractual arrangement between you and your employees in which 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.
Are schemes really no cost?
Generally, yes, in fact you’ll normally save money. A point to consider is the longevity of the work force 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 employee 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 commitment for the period they agree to upon entry.
Do I need to continue the benefit when employees are off on maternity?
Generally yes, this will be an issue when employees earnings fall below 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 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 suppler 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.
Tags : benefits, hr, salary sacrifice