Salary Sacrifice

An example of Salary sacrifice is shown below:

Summary

If an employee takes a reduced gross salary to £18956.52 they will be no worse off as their net take home pay will remain unchanged. The employer passes the savings that they make in reduced NI deduction onto the employee in the form of higher pension contributions. The total pension contribution paid into the pension plan after salary sacrifice will be £1177.04.

Important factors to consider.

Employees need to think carefully about whether salary sacrifice is right for them. Here are some of the things they should consider.

• If an employees salary drops below the national minimum wage as a result of salary sacrifice then it’s not appropriate for them.
• Their entitlement to state benefits such as statutory sick pay, tax credits and the state second pension could be reduced as they are linked to total gross earnings which will reduce after salary sacrifice.
• Their basic state pension entitlement may be reduced as it’s based on the amount of NICs they pay which will reduce after salary sacrifice.
• Some mortgage lenders will base the amount they are willing to lend on the employees salary after salary sacrifice, so the amount they can borrow may be reduced.
• As salary sacrifice is a contractual agreement the employee cannot stop it or change the amount until the contract ends or they experience a lifestyle event such as divorce, marriage or the birth of a child. The employer usually defines the lifestyle events that apply to the salary sacrifice agreement.

If you are considering investing it is important to remember that the value of your pension investment and the income generated could fall as well as rise and that there is no guarantee you will get back more than you invested.

This article should not be treated as advice. We would always recommend talking to an Independent Financial Adviser about your own circumstances.

If you would like to discuss Salary Sacrifice in more detail please contact us.