Salary sacrifice How salary sacrifice works
Giving up part of your salary might sound like a strange idea but it can make financial sense.
What is salary sacrifice?
Salary sacrifice enables you to exchange part of your salary for a non-cash benefit. This isn't a new concept but, until recently, was mainly used just with pensions.
You can still use salary sacrifice to boost your pension but you can now also give up salary in return for benefits such as bikes, childcare vouchers, mobile phones and, in certain areas, bus passes.
If your salary is reduced, it can affect state benefits and you should check with your employer to make sure your bonuses, pay increases and pension benefits won't also be affected.
Go further: Tax and your children - more information on salary sacrifice for childcare vouchers
Employers fringe benefits
Many employers offer 'fringe benefits'. Some of these such as cars, are taxable; others are not.
It's the tax-free fringe benefits (as opposed to the taxable ones) which are often the subject of salary sacrifice schemes, because they offer National Insurance (NI) savings to employers as well as tax and NI savings to employees.
If you don't know whether your employer offers salary sacrifice, just ask. If your employer doesn't, you can try to lobby for salary sacrifice to be introduced.
Go further: 30 ways to save on tax - a wealth of tips to help you save even more money
Salary sacrifice employer benefits
Although there will be an administrative cost, employers save on the NI they have to pay for employees who take part in salary sacrifice.
For example, childcare voucher providers estimate employers save around £370 a year for every employee who orders the maximum number of vouchers.
If this were multiplied across 50 employees, this would give the employer a saving in NI contributions of £18,500 a year.
Flexible benefit packages
Some employers offer flexible benefit packages which allow employees the ability to buy extra or different benefits from the ones the employer offers as standard.
You might choose to buy additional life insurance, critical-illness cover or to extend benefits like private health insurance or health screening to your partner. You can also choose to 'buy' additional holiday, or, if you prefer, give up holiday in return for extra cash.
These schemes are sometimes known as 'cafeteria benefits' or 'flex plans' and essentially they allow employees to vary their pay and benefits package in order to suit their own personal requirements.
You may be able to get benefits such as extra life insurance or critical-illness cover cheaper by buying through your employer, as your employer is able to 'bulk buy'.
Where to find help and advice
- Chartered Institute of Personnel Development 020 8612 6202
- Daycare Trust 020 7840 3350
Salary sacrifice scheme providers:
- Cyclescheme 01225 448933
- Halfords Cycle Scheme 0870 066 0511
- Kiddivouchers 0845 094 1412
- GreenTravel2Work 01908 352 067
- Wheelies Direct Cycle Solutions 0845 279 9970