Editor's message: Salary-sacrifice schemes - whereby employees give up some of their salary in return for non-cash benefits in kind - are popular among both employees and employers. As an employer, you can obtain monetary savings as you pay lower national insurance contributions on the reduced employee wages - and these savings can be used to enhance benefits provision elsewhere in the business. Savings for employees come from paying lower income tax and national insurance contributions due to their reduced pay. Such schemes also give employees flexibility of choice on the benefits they receive and how their individual remuneration package is shaped.
However, the range of salary-sacrifice benefits that attract tax and national insurance savings has changed. From April 2017 (or April 2018 if the scheme was already in place in April 2017) tax benefits are available only on pension contributions, ultra-low-emission vehicles, cycle-to-work schemes and employer-supported childcare. Employers can still offer other benefits on a salary-sacrifice basis, but they will not be able to take advantage of the tax exemptions - thereby making the arrangements much less attractive to both parties.
Salary-sacrifice schemes are not without their drawbacks - for example, the arrangements cannot reduce a worker's pay below the national minimum wage rates, meaning that individuals whose salary is equal to or only slightly higher than the minimum wage may not be able to participate.
Sarah McCarthy, HR practice editor
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Definition from the XpertHR glossary.
HR and legal information and guidance relating to salary sacrifice schemes.