How salary sacrifice benefits can help mitigate rising National Insurance costs
With tax rises worth £40bn announced in the Budget 2024 to fund the NHS and other public services, it’s fair to say businesses have been hit hard.
And with the increase in employers’ National Insurance (NI) from 13.8% to 15%, it will certainly have an impact on the financial packages provided for employees.
So how can employers navigate this change? Remember, when it comes to mitigating NI rises, employee engagement is your ace in the pack.
It’s also vital that employers communicate and emphasise the value of salary sacrifice benefits, to help both themselves and employees save.
But which are the best ones available? Here, we look at some of our favourite salary sacrifice benefits.
Holiday trading
Typically, holiday trading allows employees to purchase up to five extra days of annual leave on top of their contracted allowance. What’s better, they can even make tax and NI savings on the trade, ensuring you make savings too.
But what if they want to save for a rainy day? For those that perhaps prefer to work, it’s possible to sell any unwanted annual leave (be mindful that there is a limit to the amount of days you can sell too). You as the employer will pay colleagues at the agreed daily rate for working, but this of course is subject to tax and NI.
Either way, employees can either choose to spend more time on annual leave or put some money aside.
Employees can use the tax and NI saved via their holiday trading purchase on a selection of offerings from our Marketplace providers, including: HotelPlanner; UTC Travel; and Inspire.
Pensions
Employers can face a difficult task educating different demographics on the importance of their pension, but when offered via salary sacrifice it can help save on tax and NI, which ensures that it appeals to all parties.
And while we appreciate pension is not always the most captivating of subjects, according to our latest research, 32% of employees are now asking for increased pension contributions.
Some of the advantages of offering a salary sacrifice pension include:
- the ability for employees to grow their contributions at a quicker rate, as you as the employer will be making a higher contribution each month
- lowering a salary to align with salary sacrifice means employees pay a lower rate of tax and NI too.
It’s worth remembering, pensions are typically the biggest financial benefit you as the employer provides, and the biggest that an employee receives (other than salary).
And what better way to give back to mother earth than by offering more sustainable pension offering?
Cycle to Work
Cycle to Work is the ultimate benefit for combining wellbeing and financial savings.
Not only does it save on tax and NI, it also keeps employees fit and helps to drastically reduce the cost of commuting. What’s more, it also allows the employee and employer to be more sustainable.
According to CycleScheme, 51% of people now want to cycle to work. And with the opportunity to spread the cost of a new bike over 12 or 18 months while making tax and NI savings, you don’t have to be Mark Cavendish to realise making the transition from seat to saddle is a good deal.
So, how does the Tour de France of benefits work?
- Employees can hire a bike and/or safety equipment to travel to work, usually for a period of 12 or 18 months
- Saving employees tax and NI, they select a voucher or choose a bike from you or your third party
- They will agree with the hire arrangement and pay the full value of that through salary sacrifice
- At the end of the hire agreement, the employee can either extend the agreement, return the cycle and/or equipment or buy it outright.
Providers available via our Marketplace: CycleSaver; and Gogeta Bike.
Electric Car Scheme
Using a salary sacrifice scheme for an electric vehicle (EV) offers several benefits for both employees and employers.
For employees
Since the lease payments are deducted from the gross salary before tax and NI contributions are calculated, employees pay less income tax and NICs. This effectively reduces the overall cost of the vehicle.
In addition to being a more sustainable choice compared to petrol or diesel cars, electric vehicles typically have lower running costs too. Currently, electric vehicles do not have to pay for road tax.
Compared to leasing a petrol or diesel car, EVs benefit from lower Benefit-in-Kind (BIK) tax rates.
For employers
Employers also benefit from reduced NI contributions because the employee’s gross salary is reduced.
Softer benefits to employers include enhancing the employer’s benefits package. Providing access to EVs also helps companies enhance their CSR profile.
How does the benefit work?
An EV salary sacrifice scheme allow employees to lease a new electric car through s the employer for a set period, such as a year or longer. Employees pay for the lease directly from their pre-tax salary, before income tax and NI deductions are applied. This arrangement saves them the tax they would have otherwise paid on the lease amount.
Employers typically work with leasing companies to provide these vehicles. The terms of the agreement, including duration and the type of vehicle available, are predefined, and employees must agree to these terms.
Here are our EV Marketplace providers: The Electric Car Scheme; Octopus Electric Vehicles; Andersen EV; and Vehicle Benefits.
Supplied by REBA Associate Member, Zest
Zest is the next generation platform that’s reinventing the world of employee benefits.
