How can salary sacrifice schemes save my business money?
In April 2022, the new National Insurance rates will come into effect. Designed to help fund the NHS and social care in the UK, these new rates mean a 1.25% increase in National Insurance contributions for all employees, employers and self employed people.
As a business owner, you pay NI contributions on your employee’s earnings and benefits. This means, whether or not your profits increase come April 2022, your company tax liability will. Startups who are primarily spending investment money and not yet turning a profit will especially feel the heat of a 1.25% NI increase.
So what can you do about it? How can you save your business money and provide your team some amazing, morale boosting benefits?
Salary Sacrifice Schemes are a win-win
A salary sacrifice scheme also known as salary exchange is an arrangement between you and your team where an employee agrees to “exchange ”a portion of their gross salary in exchange for non-cash benefits. This reduces both your business and your employees’ NI contributions, plus your employees’ income tax liabilities.
It’s a win-win!
The non-cash benefits of these arrangements can come in many different forms. We’ve talked previously about leasing an electric car using salary exchange schemes. There’s also the well known Cycle to Work scheme and childcare vouchers. But one hugely beneficial scheme that’s often overlooked is a Salary Exchange Pension.
Salary Exchange Pensions boost your bottom line
As an employer, you’re required by law to offer a workplace pension scheme. When you first started out, you may have wanted to quickly tick this to-do off your list and opted for the simple solution of a pension plan with tax relief at source.
However, with just a bit of extra work, you can change to a salary exchange pension scheme and boost your bottom line by thousands of pounds every year.
Salary Exchange Pensions are when your team opts to “exchange” a portion of their salary for employer pension contributions of the same amount. This means:
- Lower NI contributions for you and your employees
- Lower income tax for your employees
- Faster growing pension pots
If you’re dreading that 1.25% increase in April, switching to a salary sacrifice pension is a no-brainer for your business! And, with Maji, the switch is easy.
Maji supports your whole team’s financial wellness
Maji is a brilliant financial wellbeing platform we’re thrilled to have partnered with for our own team. Their digital manager makes implementing a pension salary sacrifice scheme quick, easy and as profitable as possible by:
- Storing all your records electronically
- Generating automatic contract updates when necessary
- Providing personalised calculations for your team
- Offering employee workshops and chat support so your team always feels supported
- Demonstrating the importance of increasing contributions from the basic 8% for a comfortable retirement (which further increases the savings in NI)
With Maji, you could reduce your NI tax bill by up to £1,300 per employee per year, depending on the size of your team and income levels.
We wouldn’t recommend this service if we didn’t love it and wholeheartedly believe it can help reduce the financial hurdle of the upcoming NI increases. To learn more about how Thrive can help you overcome the obstacles of scaling your business by giving you a team of experts at a fraction of the cost, see how we work.