Setting up a salary sacrifice scheme in the UK involves creating a program where employees agree to reduce their salary in exchange for non-cash benefits, such as additional pension contributions or childcare vouchers. This process is essential for ensuring compliance with tax regulations and maximizing the financial benefits for both employees and the organization.
Passing on the employer national insurance (NIC) savings from salary sacrifice arrangements is crucial, as it can enhance employee satisfaction and incentivize participation in the program.
We have compiled a list of factors to consider when establishing a salary sacrifice scheme in the UK and passing on employer NIC savings.
Pay code
Set up a salary sacrifice pay code as an allowance with a negative multiplier.
Enable the salary sacrifice rule. To do this, follow these steps in Back Office.
Employee salary sacrifice
Is this set up as a negative allowance, or is it part of the employer pension scheme?
Is the employee sacrifice configured as a value or a percentage of other pay codes, and are the element codes correctly linked?
On which side of the payslip does the employee salary sacrifice amount appear (left or right)?
Employer pension scheme
Review the pay codes for the scheme.
Check the association of these employer pay codes with the scheme.
Clarify whether the employer pension scheme is solely for the employer or includes employee contributions as well. This relates to whether the employee contribution is set up as a negative allowance or part of a pre-NIable pension scheme.
Is the employer contribution configured as a value or a percentage of other pay codes, and are the element codes correctly linked?
ER NIC savings
Are these savings being passed on?
If so, what percentage is being shared?
Do you have a unique pay code for this?
How is this pay code configured?
Is this pay code associated with the employer pension scheme?
National minimum wage check
Is there a mechanism in place to ensure that employees do not fall below the national minimum wage?
Is auto-enrollment being managed in relation to the salary sacrifice scheme?