Is a salary sacrifice scheme right for your business?
Salary sacrifice programs can be really beneficial for employees – and for the employers that offer them. But we also understand the apprehension that employers may have before implementing one. Any organisational change will obviously need careful consideration.
With this in mind, our salary sacrifice experts have put together a list of the salary sacrifice pros and cons, to help you consider whether one could be beneficial for you and your employees.
Much-needed services become more accessible
Salary sacrifice allows your employees to deduct a portion of their monthly pay and put it directly towards something essential, such as childcare, a gym membership, a bike, a holiday, a railcard, a new phone or private health services.
These services may be far more accessible through salary sacrifice than they would for employees to purchase themselves. For example, corporate gym memberships and healthcare may be available at a reduced rate compared to those offered to the public.
Also, salary sacrifice lets employees split costs – they might not be able to afford a bike all in one go, but they can afford one-twelfth of a bike each month. Similarly, some services provide annual rates that work out cheaper than 12 monthly payments – if you can afford the upfront costs. Salary sacrifice can give employees access to this lower rate, yet still allow them to stretch it over a longer period.
Tax and NI savings
One of the biggest cases for salary sacrifice is the tax and NI savings it offers. Salary deductions are made before tax – with tax paid on the smaller amount therefore being less, the savings over the course of the year can be significant.
These savings can be made by both the employee and employer alike – and for the employer, saving across an entire workforce, this can be substantial.
Employee wellbeing and engagement
Many of the services that can be offered through salary sacrifice can be essential support for employees – particularly those with children, for whom childcare vouchers are very helpful. Mental health and medical support services can be provided, helping employees access care without submitting to long NHS waiting times. Financial pressures, a leading cause of stress, can also be reduced.
But offering salary sacrifice also has other benefits – there has been plenty of research into the impact of non-financial rewards (i.e. rewards other than a pay rise or bonus), and many have found that non-financial recognition can be the most effective form. Research has also shown that younger employees in particular value benefits – particularly those that aid a good work-life balance – very highly.
Offering these benefits shows employees that they are valued, and can improve engagement and retention. As these are often long-term arrangements, it shows that you are willing to invest in your employees’ futures too.
Not everyone can save
Salary sacrifice isn’t available to everyone. Minimum wage employees can’t access it, as the deductions from their pay would bring it down below the minimum wage threshold. Part-time workers who earn below the NI threshold will also obviously not be able to make any savings on NI, even if their hourly rate is above the minimum wage.
If your organisation includes minimum wage employees who work with those on more than minimum wage, you risk furthering divisions between the two – management can enjoy money-saving perks that are off-limits to those on the shop floor who are likely facing greater financial pressures, for example. It needs to be handled carefully.
As with any new program, rule, scheme, or procedure implemented at work, there will be an administrative burden that comes with salary sacrifice. Managing the back end, enrolling staff, dealing with employee questions and so on – all of this will increase the burden on whoever is responsible for the program (usually HR).
It is possible to greatly reduce this burden by working with an employee benefits provider, but it will of course still require some internal input, most of all to communicate to employees that the program is available. While we handle every aspect of implementing and running a program for our clients, if your HR resource to administer the scheme internally is currently non-existent then it may be an idea to hold off.
Salary sacrifice is changing
Salary sacrifice is not going to be the same forever – as of April 2017, any new schemes will be severely limited as to the NI and tax savings that can be offered, with the majority of benefits being treated the same as cash income for tax purposes. Childcare, pensions, cycle-to-work schemes and ultra-low emission cars will be exempt, however.
Existing programs will lose their savings for everything but those four services in April 2018, so there is just over a year to make the most of the current arrangement – and it’s understandable to question the worth of starting something if it will only change within a year. However, we’re sure if we asked you, and your employees, if they would rather enjoy just one year of savings, or no savings at all, most would pick the former over the latter!
If you would like to find out more about the changes to salary sacrifice, we’ve put together everything you need to know here.
Conclusions: is it the right choice?
So, is salary sacrifice right for your organisation? If you’re looking for a way to support your employees and offer benefits that improve retention, while making savings for your organisation too, then there’s a very good chance that it is.
While there will be some downsides for some, working with an experienced employee benefits provider is a way to ensure implementation and management run as smoothly as possible, and that you’re kept abreast of any changes to the way salary sacrifice operates, safe in the knowledge that your program will be able to adapt.
If you have any questions at all about salary sacrifice, or would like any more information – from how much you can save in NI and tax, to how long a program takes to devise and implement, or the best ways to ensure staff make use of the arrangement, please don’t hesitate to contact us – we’re here to help.