A sacrifice that could be worth making
If you were to ask your employees if they would like to be paid less, the resounding answer will be no. Even when the UK is not in the middle of a cost-of-living crisis, with inflation at its highest rate since the 1980s, the idea of choosing to be paid less seems to defy all logic. Why would you choose to do such a thing?
Well, the answer is because the UK tax system allows employees to choose to be paid less in exchange for a non-cash benefit which reduces their gross salary reducing tax and national insurance in the process, but they still receive the same total remuneration. It’s called “salary sacrifice” or “salary exchange”.
Now, before you reach for the phone to call Her Majesties Revenue & Customs to report a “too good to be true” dodgy tax evasion scheme, please read on. Salary sacrifice is 100% legal (in fact, there is an extensive section on HMRC’s website explaining it) and it is increasingly being used by employers to help their staff weather this difficult financial period.
Of course, there are rules about the kind of benefits an employee can sacrifice their salary for. They can’t, for instance, choose for their sacrificed salary to be turned into a pre-paid debit card or vouchers for their usual supermarket! However, employees can choose to sacrifice salary in return for benefits such as pension contributions, critical illness schemes, bikes to work and even financial coaching.
The UK tax system is a complex beast and as with all great money saving schemes there are rules and instances where it is not suitable or even possible. Nonetheless, it is an increasingly popular way for both employees and employers to reduce the tax and national insurance they pay whilst saving money both now and for the future.
Better With Money “Understanding Employee Benefits” webinar explains salary sacrifice in more detail and helps your employees to understand the valuable benefits their employer provides to protect their financial future.
Better With Money’s financial education webinars and courses provide information in an interesting and accessible way and provide employees with the tools and knowledge they need to become more money minded and make the most of what they earn. In the case of pension salary sacrifice, that could even mean earning less, but having more to help them through this tricky economic period.
If you would like to find out more about how pension salary sacrifice could help your business and employees, or more about Better With Money’s webinars and courses, get in touch.