6 Different Types Of Salary Sacrifice Scheme (And Which One Is The Best)

08 September 2022

6 Different Types Of Salary Sacrifice Scheme (And Which One Is The Best)

A salary sacrifice scheme is a contractual agreement between an employee and an employer, whereby the employee can choose between a range of benefits which are paid for by the employee giving-up a portion of their salary. The employee can make a request to the employer for a particular benefit, or the employer can offer the full range of benefits across the board to all its employees, from which they choose the benefit that suits them best.

It is important that the employer breaks down the full cost implications of each benefit so that employees have complete knowledge of what they are undertaking, because some benefits can have both advantages and a financial impact. Here we have outlined six of the most common salary sacrifice benefits and highlighted which, in our opinion, is the best one.

  1. Childcare vouchers

Childcare is a huge issue to young working parents and can severely impact earning potential if one partner has to work part-time or give-up work altogether in the short term. Therefore, childcare is a cost many parents are willing to take on to continue career plans and get back to work. Childcare vouchers are a very popular form of salary sacrifice benefit as they can make a tangible difference to both a family’s lifestyle and budgetary restrictions. This benefit can be provided in two ways, firstly the vouchers are provided by the employer to use against a qualifying scheme, or an employer directly arranges the provision of childcare via a qualifying scheme for the value of the portion of salary given-up.

  1. Cycle-to-work

In the interests of healthy living and promoting greener transport, cycle-to-work schemes have become very popular as a benefit offered by progressive employers. With this scheme the employee is provided with the cost of a bicycle and associated accessories, which they can use to cycle to work. While this is a great benefit for those inclined and able to cycle to work, there may be limitations for people whose commute doesn’t make this practical.

  1. Home computers

This bracket also includes laptops, tablets and mobile phones and can be a good way to cover the cost of lifestyle tech which we usually pay for with spread payments anyway. The main limitation with this benefit is that only certain qualifying providers are able to supply the goods, which may mean you can’t get the model you want or at the price you have seen elsewhere. Also, from 6th April 2017 this benefit does not qualify for protection from the gross salary rule, so employees taking this benefit cannot reduce the cost from their gross salary and hence won’t see the benefit in paying less income tax and national insurance.

  1. Pension contributions

With this benefit employees can ask for their employer to increase their pension contributions, while another benefit allows employees to receive free pension advice. While these are both favourable benefits for the employee, there are also ‘final pay controls’ now in place which prevent employers from awarding pay increases close to retirement, which would positively influence the qualifying final pay figure, but for which the employee hasn’t made any contributions. Hence HMRC have cracked down on this.

  1. Gym memberships

Again this is a great benefit for those interested in health and fitness and reflects well on employers wanting to promote themselves as considerate and willing to support their employees outside of the business. However, again, this benefit no longer qualifies for the tax and national insurance benefits as of 6th April 2017.

  1. Car leasing

If a vehicle has CO2 emissions of less than 75g/Km then it qualifies for the tax and national insurance benefit and hence salary sacrifice car schemes have proven to be the best and most popular schemes that employees can offer in recent years. This emission detail effectively means that all fully-electric vehicles (EVs) qualify for the tax benefit, and this real-cost saving adds to an already impressive roster of benefits. Car leasing is much cheaper than buying a car as you are only covering the cost of depreciation to the car leasing firm over the duration of the lease. Therefore, you can afford a better model of vehicle than you could for the same monthly cost of financing a purchase. Add to this the reduced climate impact, cheaper driving costs of EVs and the fact that the lease deals will include all your motoring costs (road tax, insurance, breakdown cover and service/maintenance) and this is a great way to improve your motoring, your climate impact and your lifestyle, and at the same time save money.

If you want to learn more about the benefits of a salary sacrifice car scheme then you can talk to our experts at Pink Salary Exchange. We have used our expertise and experience in the leasing and financing fields to design an industry-leading salary sacrifice product and with access to the best car leasing deals available, so get in touch with Pink Salary Exchange today.

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