If your company offers a salary sacrifice pension scheme, here’s how it works:

Instead of paying pension contributions from their take-home pay, employees agree to give up (or ‘sacrifice’) part of their gross salary. In return, the employer pays that amount into their pension as an employer contribution.

The benefit? Both the employee and the employer pay less in National Insurance (NI), while the employee still builds up the same pension savings. That’s because the employer pension contributions aren’t taxed in the same way and aren’t affected by salary sacrifice rules.

The biggest advantage is the NI saving for the employer. Some employers choose to put these extra savings back into staff pensions, but it’s up to the employer how much of the saving (if any) they pass on.

Before setting up a salary sacrifice scheme, employers should weigh up a few things:

• There’s extra admin involved
• You need to make sure you’re still complying with National Minimum Wage rules
• You need to consider how it will work alongside Auto Enrolment

It’s also important to communicate clearly with staff. A lower gross salary could affect things like bonuses or payments based on earnings, for example, statutory sick pay.

For HMRC to view the salary sacrifice as valid, it must meet certain requirements, including making changes to employees’ contracts.

If you’re thinking of offering a scheme like this, we’d be happy to advise, just get in touch.