Salary Sacrifice Schemes... a world of opportunities to save
29 May 2023
Salary Sacrifice and salary deduct schemes are often interchanged. They actually work very differently. Salary sacrifice schemes also have variants; since the UK government backs the eco-friendly schemes - Cycle to Work and Green Cars - read on to learn how they can enhance your offering and unleash savings for your people and business.
Salary sacrifice schemes are hugely popular among UK employees and employers. Whether your people need help buying a new bike, electric car or top tech or wish to purchase more annual leave – salary sacrifice schemes can make it affordable.
We’re in a cost-of-living crisis, and the monthly wage needs to stretch further, but salary sacrifice schemes are still an impactful financial wellbeing benefit. Whilst taking money from the pay packet reduces what an employee may receive each month, it can also reduce the taxes both employee and employer are expected to pay - if the scheme is applicable.
What is a salary sacrifice scheme?
As it says on the tin, a salary sacrifice scheme is where a business helps an employee fund anything from a new bike to the consolidation of personal debt by deducting an amount from their monthly wage.
As we touched on above, in the current climate, many people are budgeting to make their money stretch further, which on the surface, would make anything that reduces their salary seem like an unpopular choice.
That’s not the case.
What can salary sacrifice fund?
In addition to extra annual leave, electric cars and cycles, salary sacrifice can also fund pensions, childcare vouchers, employee loans and debt consolidation.
As a business owner or HR professional, many of these could already be on your radar. However, the opportunity to help employees with their finances may be new.
The ONS published statistics from March 2022 showing that among the adults surveyed, 17% reported borrowing more money or using more credit than they did a year ago.
Whilst loan consolidation via salary sacrifice is another form of debt, by borrowing from their employer, employees will have access to better rates than they may find on the high street. They also have the peace of mind that comes with knowing they won’t fall behind on their payments because the money will be taken straight from their monthly wage.
Savings for your employees...
According to The Eco Experts, the cost of driving an electric car is 11p per mile – 10p cheaper than driving a petrol car. Taking the UK average of 140 miles driven per week makes an annual saving of £1,365.73 in driving costs.
Any car owner will know that there’s more expense involved in running a car than just the cost of getting from A to B, but until 2025, electric vehicles will remain exempt from road tax – another saving.
An employee using salary sacrifice to fund the purchase of a new bike can reduce outgoings further by cycling to work instead of driving. This saves money on fuel, reduces carbon emissions, and helps your people get fit.
Even though a salary sacrifice scheme reduces the monthly wage, your employees can save money.
It’s important to note that not all salary sacrifice schemes are the same. Some will require an employee to continue to pay tax based on their annual salary rate, not what they take home after the scheme deduction.
As with any matter related to tax, there are many variables to consider, including taxable benefits, but employers can find out all they need to know via the government website.
Savings for you!
So, how does an employer save with a salary sacrifice scheme?
Whilst we’ve established that not all salary sacrifice schemes bring tax savings, those that do, impact your business’s annual pay bill.
Cycle to Work
It’s not only the employee who benefits from paying less tax when they take up a cycle to work scheme; employers do too. A business can save up to 13.08% in National Insurance Contributions.
The more employees you can encourage to participate in your cycle to work scheme, the more savings you can make. With a cycle-to-work scheme, it’s difficult to give a definitive figure since the bike's price, the employee’s tax rate, etc., impact how much money will be deducted and, therefore, the amount of the NIC savings.
Annual Leave Purchase
Annual Leave Purchase is another salary sacrifice scheme that lowers your company’s annual pay bill and NIC contributions.
Using the example of a higher rate taxpayer earning £47,000 annually before tax – if they purchased five extra days of annual leave, their salary would reduce by £903.84. This, in itself, is a saving, but in addition to that, the business would save approx. £124.72 in NIC contributions, making a total saving of £1,028.56.
Every employee’s case is unique as there are other payroll elements to factor in, such as other taxable benefits received. Still, the above figures serve as a starting point for estimating the potential savings every time an employee purchases additional annual leave.
The non-financial perks
It’s not all about the savings.
Whilst saving money for the business and employees is a big selling point, it’s not the only benefit of a salary sacrifice scheme.
By helping an employee stretch the cost of a new bike they'll use for their daily commute, you’re also helping them to get fit. A cycle to work scheme is a financial and physical wellbeing benefit, making exercise affordable.
Let’s not forget that physical and financial wellbeing impact our mental health. By getting your people on their bikes, you’re also boosting their mental wellbeing.
Additionally, when your employees feel physically, mentally, and financially healthy, they will be more engaged in the workplace, boosting productivity. Plus, a healthier and happier workforce will have fewer absences, reducing the cost to the business and the economy.
Furthermore, when your employees feel supported by their workplace and engage with the benefits on offer, you’re more likely to keep them. The recruitment process is costly, and retaining employees is essential.
Unleash the opportunities for all when you partner with Pluxee UK for salary sacrifice
Whether you want to help your people afford lifestyle-improving products, enhance their work-life balance, or offer a way for them to manage their debt, Pluxee UK can help you give and get the most from your salary sacrifice schemes.
Pluxee UK has been supporting employers for over 60 years, and we continue to make it our mission to help you help your people succeed. Contact an employee wellbeing expert today for more information.