How to implement a salary sacrifice pension scheme
The scheme can normally be set up using your existing pension scheme.
“Opt-in” or “opt-out”
With this method the employer provides employees with the option of using salary sacrifice and implements specific processes to ensure compliance
Pension scheme members are automatically enrolled into the salary sacrifice scheme. They can, if they wish, opt-out of using salary sacrifice.
Different procedures are used for each of the above methods.
In certain circumstances, employers have to consult with their employees, or their employees’ representative, before certain changes can be made to their pension scheme. The requirement to consult covers changes to occupational and personal pension schemes. Note – the purpose of the consultation is not to obtain the consent of those consulted, but to inform them and give them the opportunity to provide feedback to the employer on the proposed change(s).
Communication / Education
Employers need to communicate carefully the introduction of a salary sacrifice scheme.
- Clear and concise personalised letters with full details of how the changes will impact on the individual
- Group presentations explaining how it all works and the implications
- Individual meetings to discuss an individual’s own situation
A salary sacrifice scheme will amount to a change to employees’ terms and conditions of employment. For a scheme to be effective (and supported by HMRC), employers will need to ensure employees have effectively agreed to a variation of their individual employment contracts.
We can put you in touch with dedicated employment lawyers to ensure that your HR documentation complies with the necessary formalities
Be Aware of!
Due to the complexities of salary sacrifice it is of paramount importance your payroll processor fully understand how it works and is able to make amendments each payroll run if required.
A salary sacrifice arrangement can’t reduce an employee’s earnings below the national minimum wage rates. This means that payroll needs to be able to monitor this constantly.
Earnings Related Benefits
Salary sacrifice can affect an employee’s entitlement to earnings related benefits such as Maternity Allowance and Additional State Pension.
Contribution based benefits
Salary sacrifice may affect an employee’s entitlement to contribution based benefits such as Universal Credit and State Pension. It may reduce the cash earnings on which National Insurance contributions are charged.