What is a Salary Sacrifice?
A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit.
How does this work with a pension?
An employer may offer the employee an option to sacrifice some of their salary into a workplace pension scheme. The contribution is then made to the pension company as if the employer is making the full contribution.
Add a Salary Sacrifice Pension
First gather the pension scheme details. See Setting up a Pension scheme for the type of information you would need and setting your pension behaviour Shape.
Go to Company Setup - Pension Settings.
+ Add the Pension Scheme
+ Add Contribution Group
Tick the box to confirm the scheme Is Salary Sacrifice. When a salary sacrifice scheme is set up, only on the employers contribution is added here. The employee part of the sacrifice is made within the pay run as this comes from the employees gross pay.
Add the amount that the employer is putting into the scheme. This could be based on:
Pensionable or qualifying earnings,
A percentage of earnings or a fixed amount.
Employers NI Savings
When an employee chooses a salary sacrifice pension scheme, this will reduce the employers national insurance contribution. Some employers choose to add the employers NI savings to the pension contributions. If the scheme operates like this, tick the box to confirm to Include employers NI saving.
Enrolling an Employee
Once the scheme has been set up, you can enrol your employee. Go to the current pay run. Click on the employee and select the Pension button under Deductions. You will get the option to Enrol.
As long as the pension scheme has been set up with the same pay frequency as the employee, you will get the option to add the employee to the scheme.
Enrol the employee and then add the employees gross pay and the amount they are going to sacrifice.
This employee has a gross salary amount of £300 and is salary sacrificing £50 into the pension scheme.
The employees payslip now shows that they received a £300 salary but that £50 has now been deducted as a Pension Salary Sacrifice, giving the employee gross pay of £250.
Employer Pension Contribution
The Employer Pension Contribution shows as £100 and there is no employee pension contribution. This is £50 from the employee and because the employer has chosen to match the employees contribution, there is £50 from the employer.