Smart Pension Short Guide To Salary Sacrifice User Guide

Smart Pension Short Guide To Salary Sacrifice

Specifications

• Product Name: Salary Sacrifice
• Provider: Smart Pension Limited
• Benefits: Increased benefits for employees, reduced National Insurance contributions
• Contact Information: 0333 6662323

Product Usage Instructions

What is Salary Sacrifice? Salary sacrifice, or salary exchange, is an arrangement where employers agree to reduce employees’ salaries by a certain amount to contribute to their pensions.

Why Choose Salary Sacrifice?

• Offer increased benefits for employees at no extra cost
• Both employer and employee pay less National Insurance contributions
• Flexibility to reinvest savings

How to Set Up Salary Sacrifice

1. Decide what to do with National Insurance savings
2. Determine which employees can join the scheme
3. Consider setting a salary sacrifice limit
4. Update employment contracts and inform HMRC
5. Provide employees with a choice
6. Communicate changes to employees

Contact Information If you want to know more about Salary Sacrifice, contact Smart Pension Limited at 0333 666 2323 or visit their website.

Frequently Asked Questions (FAQ):

Q: How does salary sacrifice benefit employers?

A: Salary sacrifice allows employers to provide enhanced benefits to employees without incurring additional costs and reduces National Insurance contributions for both parties.

Q: Can all employees participate in a salary sacrifice scheme?

A: Employers can decide which employees are eligible to join the salary sacrifice scheme based on their specific criteria.

Q: What if an employee does not want to participate in the salary sacrifice?

A: Employers must offer a choice to employees when implementing a salary sacrifice arrangement, and employees can decide whether to participate or not.

What is salary sacrifice?

• Salary sacrifice, also known as ‘salary exchange’, is an arrangement between you and your employees where you agree to reduce your employee’s salary by the amount you want to contribute to their pension.
• You will then pay this amount, plus your contribution, to their pension savings.

Why should I choose salary sacrifice?

• Allows you to offer increased benefits for your employees, at no extra cost to you
• Both you and your employees pay less National Insurance contributions
• You can choose how to reinvest those savings

Example yearly employer National Insurance Contribution savings

Figures are based on an average salary of £30,000 per employee, and contribution rates of 5% of total pay.

 | 10 members| 50 members| 100 members| 200 members
---|---|---|---|---
Salary sacrificed by employees| £15,000| £75,000| £150,000| £300,000
Employer National Insurance contribution rate (2023/2024)|

13.8%

|

13.8%

|

13.8%

|

13.8%

Yearly employer National Insurance Contribution savings|

£2,070

|

£10,350

|

£20,700

|

£41,400

You can choose to pass on all or some of these savings into your employee’s pension savings, or alternatively, you can decide to retain it for the benefit of your business.

How does it work?

If you offer salary sacrifice, this is how it works:

• you will reduce the employee’s salary by the pension contribution they wish to pay.
• the National Insurance contributions paid each month will be calculated on the employee’s reduced salary figure.
• the total regular amount paid into their pension plan will not reduce and may increase at no extra cost, depending on the arrangement.
• the amount exchanged will be added to your existing employer contribution and result in a new total employer-only contribution being paid into the member’s pension.

Some things to consider

• increased level of administration and HR work required to set up a salary sacrifice.
• your payroll provider will need to display salary sacrifice correctly.
• your employees’ pre-tax salaries will be reduced by agreeing to salary sacrifice which may impact their entitlement to statutory or salary benefits.
• Salary sacrifice will affect the employment terms and conditions for your employees, which is a matter of employment law.
• If you are unsure what you need to do, we recommend that you seek the services of a specialist employment lawyer and/or tax adviser.

How to set up salary sacrifice

• There are a few things you need to consider before you set up a salary sacrifice arrangement.

Decide what you are going to do with the NI saving

• An important decision when setting up you arrange to decide if you will.
• keep all of your National Insurance (NI) contribution savings
• reinvest all of your NI savings into your employee pension plan
• a bit of both – keep some for you and your business, but also pass some back to your employees

Decide who’s joining your salary sacrifice scheme

• You can set it up so that some or all of your employees can join.

Decide if you want to set a salary sacrifice limit

• This will keep their final take-home pay above the National Minimum Wage or National Living Wage.

Update your employment contracts

• You are legally required to update your employees’ contracts. You will also need to let HM Revenue & Customs (HMRC) know.

Give your employees a choice

• You have to give your employees a choice when you set up a salary sacrifice.

Calculate salary sacrifice amounts

• You’ll need to make sure your payroll department is aware of the changes so that they administer them correctly.

Update your payslips

• Employee’s payslips need to be updated to reflect the new salary sacrifice arrangement.

Make sure you are compliant with automatic enrolment regulations

• By using salary sacrifice you still need to comply with your automatic enrolment duties and ensure that both processes operate correctly.

Talk your employees through the change

You must communicate with your employees and explain the benefits and things they need to consider when they move to salary sacrifice.

What to include:

• An explanation of what it means for them
• How they can benefit
• What changes they will see on their Smart Pension account
• When the new changes will go live
• How they can make changes to how much they pay
• You can also share our member salary sacrifice guide which includes a step-by-step guide to how salary sacrifice works.

Interested in finding out more?

• Get in touch by calling us on 0333 666 2323 or speak to your dedicated Smart Pension contact.
• You can also contact our employer support team by completing this online contact form.
• Smart Pension Limited
• The Smart Building, 136 George Street, London, W1H 5LD
• Website:smartpension.co.uk
• Telephone: 0333 666 2323
• Company registration number: 09026697

Documents / Resources

| Smart Pension Short Guide To Salary Sacrifice [pdf] User Guide
Short Guide To Salary Sacrifice, To Salary Sacrifice, Salary Sacrifice
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