Businesses and employees will both feel the pinch when National Insurance increases take effect on 6 April. Towergate Employee Benefits annual research shows less than half of UK companies (48%) offer salary sacrifice for their pension provisions. This means that both employees and employers are missing out on the opportunity to offset costs.
Sorangi Shah, Client Director of Towergate Employee Benefits comments: “Employers who do not use salary sacrifice to fund pensions could be missing out on significant savings both for their company and for their employees.” It could be an effective way to save money, especially after the recent cost increases with the new National Insurance contributions.
Smaller businesses and their employees miss out
With increasing business size, the likelihood that companies will offer salary sacrifices for their pension plan increases. Only 38% of businesses with 20 or fewer employees offer salary sacrifice. This compares to almost half (49%) for companies with 21-249 employees, and more than two thirds (67%) for larger corporations with 250+ workers.
Towergate Employee Benefits has been surprised by the lack of salary sacrifice in more businesses. Experts can help companies of any size implement salary sacrifice and review existing arrangements in order to maximise the options. Employers need to be open-minded and seek advice about their pension plan.
Towergate Employee Benefits created a calculator for saving money through salary sacrifice to assist employers with their decision-making. The calculator shows that, for a pension member who earns PS30,000 per year and pays a 5% National Insurance contribution, the annual savings for both the employer and employee would be PS225.
What do companies do with salary sacrifice savings
Employers who offer salary sacrifices on pension contributions have a variety of responses as to what they are doing with the savings in National Insurance they achieve.
Employers who save on NI give back all the savings to their employees
Employers can share 27% of their savings on NI with employees
Employer NI savings of 21% are retained by the business
Employer NI savings can be used to fund other benefits.
3% of employers use their NI savings for funding their benefit platform
Sorangi says: The most surprising thing that we found was that a third (or more) of employers gave back all the employer National Insurance savings, while only a small fraction of employees retained the savings. It is possible that this will change in the future, as employers’ budgets are likely to be tighter. “We may see an increasing trend where employers want to keep their NI savings.”
Actions to be taken by employers who have implemented salary sacrifice
The increase in National Insurance Contributions is an opportunity for employers who have salary sacrifice schemes for pensions to review these arrangements to ensure they are compliant, and to maximise value and engagement.
Sorangi concludes: “Salary exchange is also called salary sacrifice, and is a better word as neither the employee nor the employer is actually sacrificing any thing. Both the employer and employee benefit from lower National Insurance contributions, while the employee benefits from tax efficiency. It is definitely worth considering.
The original post Only 48% of companies offset National Insurance costs by salary sacrifice appeared first on Human Resources News.
