Salary Sacrifice and the Effect on Payroll Services.
At JLP we specialise in providing an outsourced payroll service to our clients which is quick, efficient and accurate. Thanks to government legislation, via HMRC, there are always new trends (and rules) to be aware of and comply with, many of which impact on Payroll. One increasingly popular trend, the subject of this article, is Salary Sacrifice, which, as you would expect, does have an impact on payroll and the payroll services that we provide. There’s also plenty of detailed advice from HMRC, which many small businesses don’t have time to keep up with. That’s where we come in.
What is Salary Sacrifice?
A salary sacrifice scheme occurs where an employee agrees to take a smaller cash salary for a job than would normally be expected. Naturally, this sacrifice does not come without a benefit to the employee and it is usually made in return for some form of non-cash benefit from the employer.
In fact, salary sacrifice is usually financially advantageous for both employer and employee. This is because, for example, when part of an employee’s overall remuneration package shifts from cash (on which tax and National Insurance contributions are due) to non-cash benefits that are wholly or partially exempt, then the employee benefits through paying less tax and NI, and the employer benefits by paying less employers’ NI. It is easy to see, from this example that a salary sacrifice scheme will effect the payroll.
One important point: a salary sacrifice scheme cannot reduce an employee’s cash earnings below the National Minimum Wage level.
Some Examples of Salary Sacrifice
There are many ways of taking advantage of salary sacrifice – Childcare Voucher Schemes is one particularly popular way. For example, if some salary is sacrificed in favour of Childcare Vouchers to the value of the salary sacrificed, then only the salary element is subject to tax and NI, whilst the childcare vouchers are exempt from both tax and class 1 NI up to a maximum of £55 per week. So if some of the salary was going to be spent on child care anyway, it is easy to see how this salary sacrifice benefits both parties.
Other areas of salary sacrifice include:
- Cycle to work schemes
- Extra annual leave
- Car parking at work schemes
- Company Cars
- Work Related Training
- And More………………..
What to look out for With Salary Sacrifice Schemes
The benefit given in return for the salary sacrifice has to be tax free for it to work of course. However, salary sacrifice does bring with it areas that need careful consideration. For example:
- Lower earnings might affect maternity pay or mortgage applications.
- Lower earnings might affect your state pension allowance.
We can help With Payroll if you are interested in Salary Sacrifice
As Payroll Services specialists, if you are interested in Salary Sacrifice, and want to know what the payroll implications are, then we can talk you through everything. Inevitably, a salary sacrifice scheme impacts on the payroll, so it’s nice to know that we can do all the hard work for you, allowing you to get on with running your business.
Contact us for more advice or call us on 0121 422 0550.