Lessen the impact of pension contributions
What is salary sacrifice (SS)?
With the advent of auto enrolment, SS is becoming more and more popular with companies deciding to use it with their pension schemes. Under a salary sacrifice arrangement, an employee gives up some of their cash earnings in return for new or increased entitlements to non-cash benefits provided by their employer. Some examples of salary sacrifice schemes include pension contributions, childcare vouchers, Cycle to Work schemes, travel and subsistence allowances.
SS can be financially beneficial for both employers and employees as it can reduce the amount of tax and/or National Insurance (NI) payments due. This happens when part of an employee's remuneration changes from
cash, for which tax and NI contributions are due, to non-cash benefits which are wholly or partially exempt from tax and/or NI contributions.
Salary sacrifice and Opera 3 Payroll
Opera 3 Payroll can automatically calculate both percentage based and value-based SS, and can cater for both pension-related and non-pension SS schemes, providing traceability and analysis throughout the entire process.
How it works
In Opera 3 Payroll, SS is processed using a “negative payment”. A Payment Profile is created for each type of SS required and is then added to the participating employee’s record. When the Payroll Calculation is run, the sacrificed amount, either as a percentage or as a value, will be assigned to that SS Payment Profile as a “negative payment”. This reduces the gross pay by the value of the sacrificed amount.
For a pension-related salary sacrifice scheme, the pension scheme is linked to the SS Payment Profile, which is then attached to the employee’s record. Pension-related SS are included within the associated pension contribution files and reports.
For additional flexibility when it comes to pension contributions, the employer can choose to add their NI saving as a ‘top-up’ to the employee’s pension, and can specify whether the whole saving or a portion of the saving will be added.
For non-pension SS schemes, the Payment Profile is attached to the employee and a value is added to it, such as the amount for Childcare Vouchers or Cycle to Work schemes.