Salary sacrifice: How to limit financial risk

With the opportunity to provide a cost neutral employee benefit, it’s no surprise that salary sacrifice has become an increasingly popular option for many businesses, especially as a way of funding high-value benefits like company cars, explains Mike Belcher.

As appealing as the scheme may seem however, without a well-developed, forward-thinking approach to management and reporting it can easily turn into a costly mistake.

Once an employee benefit has been given, it generally can’t be taken away again even if circumstances change – leaving the employer out of pocket as it continues to foot the bill. This means it is absolutely vital for a salary sacrifice scheme to plan ahead and be mapped out well in advance, with contingency plans in place to counter any changes for individual employees and the business as a whole.

Salary sacrifice schemes for company cars are often monitored and reported on in the same manner as standard company car fleets. This commonly overlooks the need for forecasting and forward-thinking analysis. Salary sacrifice is still a relatively new method of fleet funding, so there are few schemes that have been around long enough to see long-term cost results.

Continued...

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Comments

A good analysis

neileg | | Permalink

Speaking as someone who has helped set up and run a car salary sacrifice scheme I can agree with the risk analysis presented here.

However there is an additional risk that is bound up in the CO2 emissions bands. We have seen a process where the VED rates for cars and the BIK rates have dropped in CO2 terms leaving additional cost for the vehicle provider (depending on the terms of the contract) and increases in tax and Class 1a contributions.

No matter how carefully you explain the effect of changes in government policy, the average employee will still think the employer is on the make when take home pay goes down as a result.

nikicaister's picture

salary sacrific with pensions

nikicaister | | Permalink

I am still unclear how salary sacrifice pensions will fair under the new pension rules that are coming in. My understanding is that, assuming an employee doesn't opt out of the new pension arrangements, they will be required to make an empoyee contribution alongside the employer's. However, under current salary sacrifice arrangmements, although the employee surely feels like they are making a contribution to thier scheme by way of salalry sacrifice, in reality, the whole pension amount is deemed to be employer contributuion. Does this mean under the new rules that employees will need to make an additional contribution in order to comply with the rules (thus effectively contriubtuing twice). Anyone know?

Pension Salary Sacrifice & Auto Enrolment

NickJansky | | Permalink

nikicaister wrote:

I am still unclear how salary sacrifice pensions will fair under the new pension rules that are coming in. My understanding is that, assuming an employee doesn't opt out of the new pension arrangements, they will be required to make an empoyee contribution alongside the employer's. However, under current salary sacrifice arrangmements, although the employee surely feels like they are making a contribution to thier scheme by way of salalry sacrifice, in reality, the whole pension amount is deemed to be employer contributuion. Does this mean under the new rules that employees will need to make an additional contribution in order to comply with the rules (thus effectively contriubtuing twice). Anyone know?

The rules around Salary Sacrifice and Auto Enrolment were clarified very recently. Salary Sacrifice can be used under the new rules, so the employer can make all of the contributions with the employee making none, as long as the total required percentage is met.