07 Jan 2025
Even More Reasons Why Employers Should Consider Salary Sacrifice for Pension Schemes Post-Budget Changes
No matter the size of your company, the recent budget has introduced significant changes to National Insurance (NI) contributions and thresholds, making salary sacrifice schemes more attractive for employers and employees.
Salary sacrifice is an arrangement where an employee agrees to give up part of their salary in exchange for non-cash benefits, such as pension contributions. This can lead to NI savings for both employers and employees.
In Rachel Reeves’ first budget statement, the government announced an increase in Employer NI contributions, raising it to 15% from April 2025. Additionally, the NI threshold— the level at which employers start paying NI—will be lowered from £9,100 to £5,000 starting in April 2025. These changes will significantly increase employer costs.
These increases mean that employers will be looking for ways to reduce their NI liabilities. Implementing or expanding salary sacrifice schemes could be an attractive option for many employers, as it can reduce their costs while providing benefits for employees.
The Benefits of Introducing Salary Sacrifice
For Employers
- Reduced NI Contributions: By offering salary sacrifice schemes, employers can reduce their NI contributions. The portion of the salary that is sacrificed by the employee for pension contributions is not subject to NI, leading to potential savings.
- Cost Management: With the increase in employer NI contributions, managing costs becomes crucial. Salary sacrifice schemes can be a strategic tool to manage these additional expenses effectively.
For Employees
- Reduced NI Contributions: Employees can benefit from reduced NI contributions on the sacrificed pension portion of their salary, leading to higher net pay or increased pension contributions.
Implementing Salary Sacrifice Schemes
The recent budget changes present a compelling case for employers to consider or review their salary sacrifice schemes. If you have an opt-in salary sacrifice scheme in place, should this now be reviewed? Opt-out salary sacrifice schemes tend to have higher take-up rates by employees, thus maximizing employer NI savings.
It is important to ensure a salary sacrifice arrangement complies with HMRC regulations, so proper implementation and documentation are vital to avoid any legal or tax issues. Additionally, communicating the benefits and implications of salary sacrifice to employees is critical. Transparency is key to ensuring that employees understand how the scheme works and how it benefits them.
By reducing NI liabilities, enhancing employee benefits, and managing costs effectively, salary sacrifice can be a win-win for both employers and employees. Now is the perfect time to explore these options and implement strategies that benefit your workforce and your bottom line.
For more information on how Wingate can help you, please contact us at info@wingatebs.com or phone 07825 990356 to speak to one of our Employee Benefit Specialists.
