What is a salary sacrifice scheme? Salary sacrifice schemes explained

We know, the name can be a bit off-putting - who would want to actually sacrifice part of their salary? - but a salary sacrifice scheme can be a key component in improving the wellbeing of your employees.

So what is a salary sacrifice scheme? Put simply, it’s a way for employees to exchange part of their salary for specific benefits. These are known as salary sacrifice benefits, and provide something to employees via a method that also helps them save money on tax. As the benefits employees receive are taken out of their salaries before tax is, they can ultimately get more out of their money through salary sacrifice benefits. While it’s a win-win situation for employees and can often be a key driver in boosting wellbeing, not all companies offer their people salary sacrifice schemes. 

To fix this, we’re going to explain exactly how salary sacrifice schemes work and what the benefits of having one are.

How does a salary sacrifice scheme work?

Setting up a salary sacrifice scheme is a very quick and simple process. All you need to do is decide on what salary sacrifice benefits you want to offer and then set up an agreement between the employers and employees.

Once this is in place and the employees have opted in and chosen their benefit/s, they’ll receive a salary reduction each month to pay for the benefits.

What are some examples of salary sacrifice schemes?

There are plenty of different benefits to choose from when setting up a salary sacrifice scheme. Here are just a few ideas that your employees might appreciate:

• Cycle to Work scheme. Cycle to Work schemes let your staff purchase a bicycle that they’ll pay off in instalments through salary sacrifice each month, the benefits of which are almost endless! Along with getting their hands on a new bicycle, the scheme will save them money on tax of the bike, cut down the cost of their commute, and help get them active. Who knows, if enough people in your work join the scheme they might even start an office cycle club!
  
  
• Company car. Similar to the Cycle to Work scheme, this would be a monthly employee salary sacrifice to hire a car while an employee is working at your company. Many people opt for this benefit as it can be cheaper than buying a car outright. It also helps reduce employee turnover as staff considering leaving won’t just be leaving their job, but will also be losing their main mode of transport.
• Childcare vouchers. The UK has some of the most expensive childcare costs in the world, so it’s unsurprising that childcare vouchers are a popular salary sacrifice benefit. These also help promote your organisation as a family-friendly place to work.
• Technology perks. There are two massive benefits to offering a salary sacrifice scheme that helps your staff buy new tech. Firstly, it gives your team a more affordable path of getting their hands on the latest gadgets. Phones and SmartWatches can be expensive, but a salary sacrifice scheme helps spread the cost.

Secondly, this salary sacrifice benefit can make a huge difference to your employee’s wellbeing. Using this benefit allows them to purchase white goods and pay for them in instalments. So if a washing machine breaks and someone in your team doesn’t currently have the savings to buy a new one, they can use the salary sacrifice scheme to get a new appliance immediately and pay it off over the course of a few months. It might not be as exciting as a new iPhone, but this benefit will go a long way in helping your employees feel comfortable and looked after.

How salary sacrifice schemes benefit employees

The benefits of salary sacrifice schemes for your employees are clear and numerous. As we’ve already mentioned, they help them pay less tax and save money on some perks. But there’s more to it than this.

Supporting the wellbeing of your team is important, and salary sacrifice schemes can help provide them with things they want, such as a new bike or some new tech, and things they need like cheaper childcare or replacing broken down appliances without having to turn to costly credit cards. 

By introducing an employee salary sacrifice scheme you can improve the lifestyle of your employees, protect their financial wellbeing and help foster a happier work environment.

What are the advantages of salary sacrifice schemes to employers?

The benefits to employees that we mentioned above naturally have knock-on advantages to organisations who offer salary sacrifice schemes. Happier employees who are seeing their money go further and treating themselves are going to have higher levels of employee satisfaction. 

A solid salary sacrifice scheme can also help keep employee morale up in the face of tightening budgets. If your organisation isn’t able to offer the raises your team were expecting this year, the salary sacrifice benefits you offer can ensure employees still feel rewarded for their hard work.

Another crucial aspect of salary sacrifice benefits to employers is that it actually saves the organisation money by reducing National Insurance contributions that are made on behalf of each employee making use of one of these benefits. This makes it easier for employers to point to the ROI of their salary sacrifice schemes and can empower HR teams to fund other initiatives and secure buy-in from leadership through these savings.

Salary sacrifice schemes also help to improve staff retention. They can be yet another aspect of what makes your organisation so good to work for. Another job might be offering one of your employees a small pay rise, but does the job give them access to a company car? Or childcare vouchers? These are all things your team will take into consideration when deciding whether or not to move roles.

How to implement your salary sacrifice scheme

Reward Gateway can make setting up a salary sacrifice scheme quick and easy, making sure your people receive and access the benefits they want as fast as possible.

With our centralised employee experience platform you can streamline and simplify your salary and net deduction benefits. Plenty of organisations across the UK have set up successful salary sacrifice schemes with our help, leaving them with happy employees and more cohesive teams.

Speak to one of your team today to get started on your salary sacrifice journey.