Salary Sacrifice Payroll Scenario
Your organisation has implemented
Flexible Benefits for Great Britain
(GB FlexBens). A female employee opts for a personal pension plan and selects the salary sacrifice option durung benefits enrolment. The following scenario is based on salary sacrifice from her regular salary, giving a comparison of payroll data before and after a salary sacrifice option has been implemented. The employee earns an annual salary of GBP25,000.00.
Before Salary Sacrifice (GBP)
Base Salary |
25,000.00 |
||
|---|---|---|---|
Tax Code |
461L |
||
Gross |
25,000.00 |
||
Less Personal Allowance |
(4,619.00) |
||
Balance (taxable gross pay) |
20,381.00 |
||
Tax |
1,920.00 |
10% |
192.00 |
18,461.00 |
22% |
4,061.00 |
|
Total Tax |
4,253.00 |
||
NI |
11% |
2,241.00 |
|
25,000 – 4,628 |
|||
Net Pension Contribution |
975.00 |
||
Net Pay |
17,531.00 |
||
Employer NICs |
12.80% |
3,200.00 |
Net Employee Contribution |
975:00 |
|---|---|
Tax Relief at 22% |
275.00 |
5% of Base Salary |
1,250.00 |
Employer Contribution 8.75% |
2,188.00 |
Total Pension Contribution |
3,438.00 |
Higher Rate Tax Relief for Employee |
0.00 |
After Salary Sacrifice (GBP)
Base Salary |
25,000.00 |
||
|---|---|---|---|
Tax Code |
461L |
||
Base |
25,000.00 |
||
Less Salary Sacrifice |
1,250.00 |
||
Notional Base |
23,750.00 |
||
Less Personal Allowance |
4,619.00 |
||
Balance (taxable gross pay) |
19,131.00 |
||
Tax |
1,920.00 |
10% |
192.00 |
17,211.00 |
22% |
3,786.00 |
|
Total Tax |
3,978.00 |
||
NI |
|||
23,750 – 4,628 |
11% |
2,103.00 |
|
Net Pension Contribution |
0.00 |
||
Net Pay |
17,668.00 |
||
Employer NICs |
12.80% |
3,040.00 |
Net Employee Contribution |
0.00 |
|---|---|
Tax Relief at 22% |
0.00 |
5% of Base Salary |
0.00 |
Employer Contribution 8.75% + sacrifice |
3,438.00 |
Total Pension Contribution |
3,438.00 |
Higher Rate Tax Relief for Employee |
0.00 |
A comparison table summarising the main differences in the payroll before and after the salary sacrifice option is agreed, is shown below:
Employee |
Employer |
||||
|---|---|---|---|---|---|
Net Pay |
Total Pension Contribution |
Salary |
Employer NICs |
ER Pension Contribution |
|
|
17,531.00 |
3,438.00 |
25,000.00 |
3,200.00 |
2,188.00 |
|
17,668.00 |
3,438.00 |
23,750.00 |
3,040.00 |
3,438.00 |
Saving |
138.00 |
0.00 |
1,250.00 |
160.00 |
(1,250.00) |
From the above scenario, it can be seen that implementing a salary sacrifice pension plan option results in the same overall pension contributions on behalf of the employee. However, by sacrificing a proportion of salary which is transferred into employer pension contributions, an employee pays less tax and national insurance and receives more net pay. In this scenario, net pay is increased by GBP138.00. For the employer, salary sacrifice for the pension plan results in a GBP160.00 reduction in employer NICs.
If you have implemented salary sacrifice for a pension plan which also has National Insurance Cost Neutralityapplied, you must determine whether any employer NICs savings produced as a result of the salary sacrifice are paid back to the employee. This process is referred to as pension payback.
For more details on pension payback, see: Salary Sacrifice in GB FlexBens Pension Plans .