What is salary sacrifice?

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1 What is salary sacrifice? Get the Government to support your automatic enrolment costs in partnership with Johnson Fleming Group Pensions Group Risk and Healthcare Service Provision

2 So, what is salary sacrifice? Salary sacrifice is an arrangement where your employees give up part of their future earnings in exchange for a non-cash benefit. Whilst this can be used for a number of benefits such as childcare vouchers, bikes to work, etc. this guide will focus on its use for pension benefits. As the salary is being sacrificed rather than paid, both you and your employees do not pay National Insurance Contributions (NIC) on the sacrificed amount. The sacrificed amount can then be paid into the employee s pension plan as an employer contribution. The same pension contribution is received, but both you and the employee are better off due to the NI saving. 2 What is salary sacrifice? In recent years Her Majesty s Revenue and Customs (HMRC) has reviewed its practices to simplify them, and to allow the operation of salary sacrifice schemes to work alongside autoenrolment. This means that employers can now effectively establish a salary sacrifice scheme and benefit from the advantages of salary sacrifice.

3 Can I implement salary sacrifice into my business? Salary sacrifice is suitable for almost every employer running a pension scheme. In the past salary sacrifice or salary exchange schemes were mainly used by larger employers due the complications of setting them up and running them, however in recent years HMRC have changed the rules on how to run these arrangements and have made things much simpler. The use of salary sacrifice was reviewed in 2016 by the Treasury and it was confirmed that salary sacrifice for pension arrangements is a legitimate way to reduce NIC liability. 3

4 What are the benefits of setting up a scheme? With employee pension contributions due to increase to 5% over the next few years under automatic enrolment the savings for your business could be significant. How much can I save? 1% 3% 5% Annual Payroll % contribution p.a % contribution p.a % contribution p.a. 75, , , , ,035 1, , ,070 3,450 1,500,000 2,070 6,210 10,350 3,000,000 4,140 12,420 20,700 6,000,000 8,280 24,840 41,400 12,000,000 16,560 49,680 82,800 Figures assume you will receive NIC savings on all of the sacrificed employee contributions at 13.8%. 4 What is salary sacrifice?

5 What are the benefits for your employees? National Insurance saving Your employees will receive a NIC saving on sacrificed contributions of between 2% and 12% (dependent on their earnings). Tax relief Employees who are higher or additional rate tax payers will receive their higher rate tax relief at source, rather than having to reclaim it through annual assessment. No paperwork By making salary sacrifice the default option (with the ability to opt out), there is no requirement for your employees to complete paperwork. 5

6 Is it complicated to set up? 6 What is salary sacrifice?

7 Let us help your business to establish salary sacrifice. Our straightforward Salary Sacrifice Toolkit provides full guidance on establishing and administering a HMRC qualifying salary sacrifice arrangement. What s included? Changing employment contracts an addendum to your employment contracts making salary sacrifice the default way to make pension payments including a review of your existing contract by a legal services firm to ensure it is fit for purpose at no additional cost Employee assessment processes to make sure you identify who to include, and those it may not be suitable for Communications including employee announcement templates and everything you may want to include to make this change a success Instruct notifying your scheme provider and obtaining HMRC approval The full solution! Order now > 750 excl. VAT 7

8 Get in touch If you need further guidance on salary sacrifice please get in touch: in partnership with Johnson Fleming Group Pensions Group Risk and Healthcare Service Provision Health and Protection Solutions Ltd trading as The Health Insurance Group is authorised and regulated by the Financial Conduct Authority. Johnson Fleming Group Limited is authorised and regulated by the Financial Conduct Authority (FCA). Johnson Fleming Limited, Johnson Fleming Administration Services Limited, Johnson Fleming Services Limited and Johnson Fleming Future Life Planning Limited are Appointed Representatives of Johnson Fleming Group Limited. Registered Office: Johnson Fleming Group Limited, Fleming House, Bromsgrove Enterprise Park, Bromsgrove, B60 3AL. FCA No All fees are subject to VAT, annual RPI increases and payable directly to Johnson Fleming by Direct Debit mandate. JF What is salary sacrifice?