Thanks for your question, Jude. You’re right, there is a lot of information to take in. However, it’s worth getting your head around.
Salary sacrifice arrangements are great for workplace pensions as it offers both you and your employees valuable benefits, such as significant tax savings.
Now, there are several ways to set up your scheme via salary sacrifice. One of which is the simple method.
Before we dive into what the simple method is, it’s important to understand that via salary sacrifice, your employee’s pension contributions are deducted from their gross pay each month. Therefore, staff save on National Insurance (NI) as their contributions are taken before their income is taxed. Essentially, this means they don’t have to pay Income Tax or NI on the amount they sacrifice.
When your workplace pension scheme is set up using the simple method, it enables your employee’s monthly net pay to increase. This is because their National Insurance savings, which are made through salary sacrifice, are added to their net wage. As a result, your staff members will take home more money in their payslip.
For example, an employee earning £30,000 who sacrifices 5% for their pension will contribute £125 to their scheme each month (£1,500 annually). Due to the fact they won’t pay National Insurance on the amount they sacrifice, each month the employee will save £15. This gets added to their net pay, boosting what they take home. Over the course of a year, they’ll save £180.