Salary sacrifice, an arrangement between employers and employees, offers enticing benefits like increased take-home pay and tax savings. However, navigating its complexities requires vigilance to avoid potential pitfalls. Below, we delve into the advantages of salary sacrifice, from enhanced employee perks to reduced employer National Insurance Contributions. But we also uncover common pitfalls and provide strategies to avoid them, remaining compliant. Find out more below.
Salary sacrifice is a contractual arrangement between employers and employees. It involves employees opting for a reduced cash salary in exchange for non-cash benefits like cycle to work company cars, or increased employer pension contributions. This approach has gained traction over time due to tax and NI savings. Employees gain access to non-cash perks, while employers benefit from decreased employer National Insurance Contributions owing to the reduced gross pay.
With a £50,000 gross salary, the employee allocates 5% to a workplace pension, while the employer contributes 3% under auto-enrolment regulations. The table illustrates how a decrease in gross pay can lead to a rise in take-home pay.
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