Salary Sacrifice question

JoeCrystal

I am putting together a proposal at work on how good the salary sacrifice is for both the employer and employees.  However, after doing some research and as the vast majority of the employees are on an hourly rate, I have a hard time finding out if salary sacrifice can work with the employees on an hourly rate or it is only for the salaried employees? I thought I ask you guys since this forum is a goldmine of information and opinions!

molerat

No difference.  Simply reduce the hourly rate by the appropriate amount. I would guess the majority of employees on salary sacrifice are on an hourly rate.

ceh209

It may cause issues if that hourly rate is minimum wage, as you can't sacrifice to below minimum wage. But that would apply equally to the hourly paid and the salaried people anyway.

zagfles

Why do you think hourly rate makes it harder? It should make it easier! The NMW is an hourly rate, so it'll be a lot easier to make sure people don't sal sac below NMW.

JoeCrystal

Thanks, guys. That does make perfect sense now. Well, that minimum wage limit is going to be a significant issue and maybe how the bonuses are treated and working out on how it works with auto-enrolment qualifying earnings as well.

Paul_Herring

I have a hard time finding out if salary sacrifice can work with the employees on an hourly rate or it is only for the salaried employees?

If they're paying staff national insurance at all, then the employer will save the 13.8% erNI they normally have to pay above the employee's 20% income tax and 12% eeNI. (Some companies willing add that 13.8% to their employee's contributions.)

Conversely, if staff aren't getting paid enough to be paying NI (well above average hourly wage, but not working many hours e.g.,) then salary sacrifice is almost certainly worse than a relief-at-source scheme (but little difference to a net-pay scheme.)

Mick70

funnily enough I am thinking of asking our FD the same thing , most staff will be 40% tax bracket (including myself) and wondering if its a no brainer and should be pushing for it or if it isnt as clear cut as I am not fully clued up on pros/cons as yet

CSL0183

For private companies that do not offer salary sacrifice, this is BAD financial management from the finance directors down. They should be on the ball and are simply not tax efficient. 
£50k salary with normal pension contribution would see the employer paying 13.8% national insurance on the gross salary. £50k with a SS arangement (say 10%) would see them saving 13.8% on that £5k contribution.
Certainly if an employee can make a case to senior managament / finance directors of how a salary sacrifice scheme could save the company money then this can only be a good thing for that employee (Brownie points) the employees within the business (especially lower earners on 20% tax relief getting a 60% uplift to 32% ) and for the business as a whole. Everything is a win/win hence why 75% of private companies adopt SS.

Makes you wonder where some of these finance directors get their degrees from. They should be on the ball with current legislation to minimise their tax footprint.

With regards to the original question, what difference does hourly rates make? Many PAYE employees are paid a yearly salary made up from an hourly rate. The cost is fixed, 37.5hrs x 52wks. The sum is known.
Overtime and bonuses are not normally calculated for pension calculations so are irrelevant. All you need is the gross salary figures and the SS % contribution.

JoeCrystal

CSL0183 said:

Overtime and bonuses are not normally calculated for pension calculations so are irrelevant. All you need is the gross salary figures and the SS % contribution.

I will be certainly using that 75% of the private companies using SS for their pension schemes! If you can remind me or send me the link to the statistic, that would be very helpful. In my case, all income (including monthly bonus and overtimes) above the lower qualifying earnings limit is taken into account for the pension contribution. All employees get a monthly bonus here after all that can vary a lot.

CSL0183

JoeCrystal said:

CSL0183 said:

Overtime and bonuses are not normally calculated for pension calculations so are irrelevant. All you need is the gross salary figures and the SS % contribution.

I will be certainly using that 75% of the private companies using SS for their pension schemes! If you can remind me or send me the link to the statistic, that would be very helpful. In my case, all income (including monthly bonus and overtimes) above the lower qualifying earnings limit is taken into account for the pension contribution. All employees get a monthly bonus here after all that can vary a lot.

2014 @ 61%
https://employeebenefits.co.uk/issues/november-2014/pensions-salary-sacrifice-what-employers-need-to-know/
2017 @ 84%
https://employeebenefits.co.uk/issues/benefits-research-2017/exclusive-84-offer-salary-sacrifice-pension-arrangements/
2017 @ 68% showing a snapshot of the SE only.
https://employeebenefits.co.uk/issues/february-online-2017/68-employers-use-salary-sacrifice-deliver-workplace-pension-scheme/
Various figures in this one from 61-85%
https://www.lambert-chapman.co.uk/blog/embrace-the-power-of-the-salary-sacrifice-scheme/

badmemory

JoeCrystal said:

 above the lower qualifying earnings limit is taken into account for the pension contribution.

This is the bit I never like.  Or does the employer actually pay into the pension on all income it is just the employee who doesn't?  In which case nice one!