With the increase in the rate of employer’s National Insurance and the reduction in the starting point, you may want to look at ways of mitigating this increase (unless it’s fully covered by the increase in the Annual Exemption to £10,500).
Salary sacrifice is a more tax-efficient way for you to make pension contributions.
As an employer, you might offer your staff the option of salary sacrifice as part of your pension scheme. This is a way to make staff pension saving more tax-efficient and should mean their take home pay increases.
If they choose to take up the option, you and your staff will agree to reduce their salary by the amount of their contribution, and you will then pay that difference into their pension, along with the company’s contribution to the scheme.
As they’re effectively earning a lower taxable salary, both you and your employee pay lower National Insurance Contributions (NICs), which often means their take-home pay will be higher. Better still, your company will save NICs, part of which you might pay into their pension too (although you don’t have to do this).
There are a few potential disadvantages:
- If you are providing your staff with life cover, this is usually worked out as a multiple of their salary. You might provide less life cover if they sacrifice some of their salary. You should tell your employee if any workplace life cover is based on their pay, before or after the salary sacrifice deduction.
- There are restrictions on leaving a defined benefit scheme within two years. If it is a defined contribution scheme, staff can only get a refund of their contributions if they opt out of or leave the scheme within 30 days of joining it. As these contributions will be made by you as an employer, they might not be able to get a refund. If they opt out or leave after 30 days – their contributions will remain invested in their pot, and they won’t be able to access the money until the age of 55 (57 from 2028).
- A lower salary might affect the amount of money they are able to borrow for a mortgage.
- Their entitlement to certain benefits, such as Statutory Maternity Pay, might be affected.
You may need to ensure that employee contracts allow for the use of salary sacrifice, as it may need to be updated.
If you would like guidance on whether this would be of benefit to you and your staff, please contact us.
