Salary Sacrifice

Bonus Case Study

David Vance Consulting Ltd was brought in to assist a client with its employee's pensions, and proposed the introduction of a Salary Sacrifice arrangement. Over 80% of staff chose to participate. The company decided to pass on a portion of their employer's National Insurance savings to the employees' pension pots to help enhance their ultimate retirement funds. This money, on top of their own employee contributions, boosted staff morale significantly.

If an employee had a salary sacrifice pension arrangement of £10,000 annually redirected from income, the company would save Employer National Insurance contributions of 13.8% on the sacrificed £10,000, creating an additional contribution of £1,380 per year.

In addition to the company saving money on employer NI, in 2019/20 an employee earning £50,000 per year making a £2,400 per annum gross contribution into their pension under traditional rules would save £480 income tax. Under Salary Sacrifice, they saved £480 income tax and £288 Employee National Insurance, meaning a total savings boost of £768.

The utility of salary sacrifice is not strictly limited to bonus payments. The client also has employee contributions towards a pension of £100 per month (£1,200 p.a.). Making this contribution under salary sacrifice saved the employee £144 NI per year. Furthermore, the company saved £165.60 per annum on employer NI per employee. For a business with 10 employees, this equalled £1,656 in annual employer savings.

David Vance Consulting Ltd saved this company thousands of pounds annually while enhancing employee benefits and boosting morale through structured pension planning.