Salary Sacrifice -timing of agreement

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An employee has asked if he can sacrifice some of his salary and have the company pay it into his pension.

Given we're on the 12th January, if an agreement is signed now, can this be implemented during the January payroll, or does it need to wait until February? I'm aware that per EIM42765 "Entitlement to future remuneration must be given up before it is treated as received for employment income purposes."

EIM42260 states: "Money earnings are treated as received for assessment purposes, and paid for PAYE purposes, on the earliest of the following:

  • when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)
  • the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)"

Would I be right in thinking that as the employee is not yet entitled to payment for the remainder of January, it can be implemented in January?

Replies (4)

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By Hugo Fair
12th Jan 2022 15:44

Before responding to your core question, I just want to flag up that your company needs to understand the process of setting-up a Salary Sacrifice scheme.

It's not particularly arduous - but it involves a lot more than merely adjusting the figures for an employee's salary in payroll. It is a contractual change in the terms of employment (resulting in a reduction of contracted salary, NOT an agreement to simply deduct the cost of something else from taxable gross salary)!

There are potential pitfalls that can result from the reduced salary - the most obvious being that this may affect the amount of employee's entitlement to various Statutory payments ... but it can also put the employer into a position where they are unaware of contravening NMW rules.

Oh and the tax benefit of a salary sacrifice scheme can be unilaterally withdrawn by HMRC if the employee changes out of and in to a scheme that he/she has previously joined without there being an associated 'lifestyle change that significantly alters the employee’s financial circumstances'.

In short, you (or rather your employer) need to understand the implications/options before simply agreeing to go ahead with the employee's request.

Now reverting to your original question ("if an agreement is signed now, can this be implemented during the January payroll?") ... IMHO Yes (so long as that is what is stated in the contractual documentation that you or whoever will be drawing up).

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By tom123
12th Jan 2022 15:52

When agreeing this kind of things, you will always be talking about 'the future' to a small extent, as you have to get agreement to things before they happen..

So, no problem with your timings.

Thanks (1)
By Kate Upcraft
13th Jan 2022 09:59

Yes the dated contract change must be in place before January's pay day and the reduced pay reflected one the gross pay side of the payslip

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By psimonparsons
13th Jan 2022 13:25

Suggest yes. Pension sacrifices (along with childcare, cycles) do not fall under the Heaton v Bell principle. Whereas some require minimum 12 months of lifestyle change, that doesn’t apply to pensions nor childcare nor bikes and these do not have a longevity of lifestyle change requirement. However, suggest SS cannot be retrospective.

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