Payroll: Salary Sacrifice The employers are increasingly using wage sacrifice to manage compensation for employees. This raises the perceived value of their employee reward package, and forms a large part of Human Capital Management. But times have changed from the original purpose of flexible benefit plans: who has been to adapt the package of treatments most beneficial to the employee, without additional cost to the employer. Now, several factors are all employees based on employer cost savings, mainly at government expense.
The lighter side
Since February 2005, HMRC has allowed employers to administer benefit plans, any way they want: the original salary, wage reductions, the notional remuneration before taxes and deductions pre-NI and all combinations Between the two are now allowed to be applied. What the HMRC inspector will be interested to find such arrangements, are copies of the revised contract between employer and employee. If the revised provisions exist, the salary sacrifice is in order and all the benefits of qualifying as regards the correct operation of tax and NICs are applicable.
Where's the catch?
If proof of the revised employer contractual arrangements with their employees can not be provided, the employer will find themselves presented the bill for the underpayment of tax and NICs, with fines and associated penalties.
Employers must also ensure they do not fall within the scope of the new communications tax avoidance (DDR) scheme. The Government is committed to ensuring that all employers and employees pay the correct amount of tax and national insurance contributions (NICs). Since 1 May 2007, the legislation also includes ADP NICs in respect of avoidance schemes, which requires employers to disclose.
Nothing specifically excludes salary sacrifice arrangements for disclosure. (HMRC
However, HMRC provides very few of these schemes must be declared, because they fall at a certain stage of testing.
HMRC does not expect parenting plans need to properly disclose. Ultimately, it is for developers and managers decide whether to pay disclose a particular regime.
Some important points
Choosing to sacrifice salary, a modified contractual terms and conditions of employment took place. During periods of ordinary maternity leave, paternity and adoption leave, employers are legally required to continue to provide all contractual benefits. Salary sacrifice can not occur on statutory payments received by the employees during these periods (payment rates are already calculated on the amount of lower earnings after salary sacrifice), then the benefits should continue to be provided with all the costs being borne by the employer.
With the increasing use and popular pension chip or similar systems, employers must recognize that during any period of paid parental leave (such as maternity and adoption), contributions from the employer on a contractual basis for defined contribution plans - or even personal pensions - must continue to be paid by the employer. This is true even if the payment period extends beyond the ordinary parental leave periods, as is currently the case for both maternity and adoption. These employer contributions must continue to be based on the benefits of the employee's work and normal, unlike all employee contributions, not on parental leave payments reduced. Thus, employers need to be smart about pensions salary sacrifice: understand your true commitment to continue.
Did you know?
The employee can potentially save tax of 22% and 11% in NICs on the costs of some of these benefits and more importantly, the employer can save 12.8% of these costs benefits the employer NICs contributions. These amounts may be potentially important. And the higher-rate taxpayers can save 40% (although the NICs savings is potentially limited to 1%). This, of course, all changes from April 2008 when the base rate reduced by 20% and NIC salary cap is aligned with the range of higher tax rates.
So where is the FLEX expansion?
Most of the benefits of attracting the Board payments as income for the supplier, but employers may consider making use of other elements.
Save with low NPI
The following flexible benefits to attract no tax or NICs liability and potentially provide significant savings to the employee in relation to the costs they would bear if paid directly from their pay:
Employee to a medical examination
Provision of one mobile phone (limitations were placed on the provision of multiple phones in April 2006).
Share incentive plans held in trust for a period of several years.
Through the provision of salary sacrifice, the agreement can be designed to take advantage of the bonus shares by employer provided without cost to the employer. Indeed, the sacrifices paid employee to receive compensation and the employer of free bonus shares given.
Employees who occasionally work from home may agree to offset a portion of their salaries to receive as an alternate to 2 per week tax and NICs free. Although the advantage is limited, it does increase the potential employee's net pay between 34.32 and 42.64 per year and saves the employer 13.31 per year for each employee in the plan, it adds up all potentially 'to.
Thus, the scope for expansion of salary sacrifice arrangements is wide and varied, thus paving the way for a number of specialized service providers flexible, such as Ceridian.
Find these few tips? Why not use our expertise to take full advantage of the loopholes that apply to a pension?
Contact us for more information on flexible benefits