There are plenty of ways employees can benefit from salary sacrifice, but the most popular is tax-efficient pension contributions. If you’re prioritising your pension – salary sacrifice may be an awesome way to boost your pot. And, there are some really useful tax-benefits that you may not be aware of. However, salary sacrifice is not for everybody. In our latest blog, we provide a simple summary of salary sacrifice and how it works, and we explain whether or not umbrella companies offer it to their employees.
What is salary sacrifice?
Salary sacrifice is a way for employees to give up some of their salary in exchange for a non-cash benefit – such as the cycle to work scheme, pension contributions, childcare vouchers, and so on. The most popular salary sacrifice arrangement for employees is the tax-efficient way to boost a personal pension pot. Therefore, we’re going to focus on pensions.
Salary sacrifice is a nifty way for employees to boost their personal pension pots – in a tax efficient manner. By choosing to allocate more of your earnings towards your pension, these contributions are exempt from tax and National Insurance Contributions. Therefore, you can boost your pension while taking advantage of a useful tax saving.
You’re free to decide how much you want to allocate to your personal pension provider. Most commonly, employees will choose either a fixed amount, or a percentage of their earnings.
There are additional benefits to boosting your pension using salary sacrifice. For example, basic rate tax payers are eligible for a government contribution of £20 for every £80 they put aside (tax relief). For example, for every £80 you decide to allocate towards your pension, tax relief (or as some people refer to it – a government contribution) will increase this £80 to £100!
Who should use salary sacrifice?
If you live paycheque to pay check (like most of us) – salary sacrifice may not be for you! However, if you have a bit more disposable income, or are further along in your career, you may be able to truly benefit from salary sacrifice.
Typically, salary sacrifice is used by:
- Those who are high-earners and have disposable income left each month
- Professionals nearing retirement
- Workers with additional sources of income
- People who are prioritising their pension
- Debt-free individuals
To benefit from salary sacrifice, you’ll need a personal pension set up. If you have one in place – great. If you don’t – there are plenty of organisations out there that can help you set up the perfect pension for your circumstances. We highly recommend you do your research.
More information on salary sacrifice is available on the governments website and we recommend you give it a read.
Do umbrella companies offer salary sacrifice?
Not many umbrella companies offer a salary sacrifice service because it can be heavy on administration. And, historically it’s been difficult to set up. However, there are some umbrella companies out there offering salary sacrifice. Therefore, if you’re interested, it’s worth pursuing. Most commonly – the only type of salary sacrifice an umbrella will offer is for your pension.
We recommend you carry out your own research and have a look for umbrella companies offering salary sacrifice. Due to the added administration, the umbrella company’s margin is likely to be higher compared to their usual PAYE service (without salary sacrifice).
Have you seen our top 10 umbrella companies?
Hopefully we’ve helped answer the question – do umbrella companies offer salary sacrifice?
If you’re looking for an umbrella company, we have collated a dependable list of our top 10 umbrella companies – and they’re all accredited by the FCSA! Please go and check it out for yourself! Some of the umbrella companies have special offers on at the moment for new clients, and offer unbeatable value for money.