Salary Sacrifices

Salary Sacrifices

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I've got an employee who is having £48 per week deducted as a salary sacrifice for 10 weeks to cover training costs.  He is hourly paid.  How do I reflect this on his payslip?  I've got another, salaried, employee, for whom it's easy to just reduce his monthly pay and which is over a full year so straight forward.  Is it acceptable to show it as a pre-tax deduction for the hourly paid guy rather than reducing the actual rate?  His hours vary each week as he's a driver so can't just work out a reduced pay rate that would guarantee that the full amount was repaid in 10 weeks' time.

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Euan's picture
By Euan MacLennan
14th Jul 2014 11:37

Show as deduction

I would show the salary sacrifice as a separate deduction from gross pay on the payslips of both the hourly paid and the salaried employees - in the latter case, it is usually agreed that % pay rises, overtime rates, etc., are based on the full level of pay, rather than the rate as reduced by the salary sacrifice, so it is desirable to show the full rate on the payslip.

Make sure that the salary sacrifice for the hourly paid employee does not reduce his pay per hour to less than the NMW.

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By User deleted
17th Jul 2014 16:54

Is the training an obligation of the employee?

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By Paul Soper
17th Jul 2014 18:28

Obligation or not

Provided that the training is relevant to the employment or occasioned by redundancy (not the case here) then no benefit in kind arises on the provision of the training. What difference would it make if it were an obligation?  There have been a very large number of cases concerning employees in the NHS failing to get tax relief for training costs where occasioned by the conditions of their employment but not allowed.  If they were undertaken as a salary sacrifice they would have been relieved.

What worries me here is whether this is actually a salary sacrifice or the employee reimbursing the employer for an expense originally incurred by the employer.  This is reinforced by the advice to show the amount as a deduction (I presume along with superannuation, relief for which it would supposedly mimic).  Under a salary sacrifice arrangement there is an acceptance by the employee, with the employers agreement of a reduced salary and it is that reduced salary which should be used for RTI purposes and shown on the payslip.  Subsequently the sacrifice can be brought to an end and the remuneration restored to it's former level.

One of the drawbacks of a sacrifice is the effect it can have on superannuation entitlement, but is considered, even by HMRC, to base things like %pay rises on the sum of the sacrifice and the tax free benefit in kind.  It would not surprise me if HMRC kept an eye out for a badly engineered sacrifice arrangement to attack.

HMRC guidance says "What is a salary sacrifice?
A salary sacrifice happens when an employee gives up the right to receive part of the
cash pay due under his or her contract of employment. Usually the sacrifice is made
in return for the employer's agreement to provide the employee with some form of
non-cash benefit. The 'sacrifice' is achieved by varying the
employee's terms and conditions of employment relating to pay.
Salary sacrifice is a matter of employment law, not tax law. Where an employee
agrees to a salary sacrifice in return for a non-cash benefit, they give up their
contractual right to future cash remuneration. Employers and employees who are
thinking of entering into such arrangements would be well advised to obtain legal
advice on whether their proposed arrangements achieve their desired result.

http://www.hmrc.gov.uk/specialist/salary_sacrifice.pdf

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