A salary sacrifice schemes, put simply, involves employees contractually giving up salary in return for other benefits.
The attraction of salary sacrifice schemes comes when those benefits can be provided free of National Insurance (NI). The most common example would be a pension contribution.
By way of an example if you have 100 employees in your business with an average salary of 25,000 your organisation will be significant employers NI.
If you then introduce a new salary sacrifice scheme is implemented where employees reduce their salary by 5% and your workforce accept, there are NI savings of £16,000 to be made.
What happens to that saving is up to your business. It can be given to employees, enhancing their overall package, shared with them or retained by you.
The upcoming changes to employers NI in 2011/12, when it increases to 13.3% will make salary sacrifice schemes even more attractive.
Are they worth it? Well it depends on your overall payroll costs. For smaller employers the savings may well be overshadowed by the administration cost of putting a scheme in place. For larger employers, what have you got to lose.
