Salary Sacrifice vs Net Pay - NI

duckson

My wife has just had an email from her employer telling her that due to the National Living Wage increase that her pension can no longer be taken as Salary Sacrifice as it would bring it below the National Living Wage and that it will be taken by net deduction instead.

I assume this will also mean she doesnt save on NI and hence her monthly net pay will also be lower?

molerat

Correct, there is no NI saving with a net pay scheme.

duckson

Thanks, yes pretty annoying as her pay went up 6% and the min wage went up 6.7% so there will be little in it. Her employer may only need to give her a very small increase and then Sal Sac would be ok, saves both of them the NI!

duckson

Anyone know what the minimum hourly wage would need to be if all that is going out is Pension via Sal Sac? 

£12.68 an hour to keep it above the £12.21 min wage?

Marcon

duckson said:

Anyone know what the minimum hourly wage would need to be if all that is going out is Pension via Sal Sac? 

£12.68 an hour to keep it above the £12.21 min wage?

She can salary sacrifice 47p per hour - but I don't think that's quite what you meant to ask...? It looks a bit too simple!

Marcon

molerat said:

Correct, there is no NI saving with a net pay scheme.

There is if it's used in conjunction with salary sacrifice. It's the salary sacrifice that gives the NI saving, not the type of scheme.

I'm not sure this is a net pay scheme, though - I suspect it's the same confusion seen in a post a few weeks ago, where deductions are made from net pay, and then paid over to a relief at source scheme. Of all the daft pensions terminology, 'net pay' (where employee contributions are actually taken from gross pay) must surely top the list...

duckson

Marcon said:

duckson said:

Anyone know what the minimum hourly wage would need to be if all that is going out is Pension via Sal Sac? 

£12.68 an hour to keep it above the £12.21 min wage?

She can salary sacrifice 47p per hour - but I don't think that's quite what you meant to ask...? It looks a bit too simple!

It's exactly what i was asking! lol

I'm thinking of an hourly figure that she could go back to the company with that would mean she could Sal Sac still and both company and employee save on NI...win win. The company NI saving would partially (?) pay for her pay rise!

Marcon

duckson said:

Marcon said:

duckson said:

Anyone know what the minimum hourly wage would need to be if all that is going out is Pension via Sal Sac? 

£12.68 an hour to keep it above the £12.21 min wage?

She can salary sacrifice 47p per hour - but I don't think that's quite what you meant to ask...? It looks a bit too simple!

It's exactly what i was asking! lol

I'm thinking of an hourly figure that she could go back to the company with that would mean she could Sal Sac still and both company and employee save on NI...win win. The company NI saving would partially (?) pay for her pay rise!

Employers can't insist employees join their pension scheme, let alone insist they use salary sacrifice, so I think she'd have a bit of a struggle flogging that idea. The other problem is that increasing her pay would mean her contributions had to increase, which would actually mean nudging her pre-sacrifice pay up a bit more.

Without knowing the %ages involved (?minimum employer and employee?), and whether contributions are based on 'total' or just 'band' earnings (ie excluding the first £6,240 of annual pay), what might crack it would be suggesting to the employer that the employee contribution rate drops very slightly if an employee opts to pay by salary sacrifice, to ensure minimum wage legislation isn't breached - and the employer's NI saving might well cover that extra cost. 

duckson

She pays the 5% as the max the employer will pay is only the minimum by law - 3%.

Marcon

duckson said:

She pays the 5% as the max the employer will pay is only the minimum by law - 3%.

Her pre-sacrifice hourly rate would need to be £12.85 to enable her to sacrifice 5% and still be paid £12.21 an hour if her contributions are based on full pay.

To go back to the other part of my question...what are her/employer contributions based on? Total earnings, or something else? It may not be as obvious as it sounds; she could be paying 5% of her full pay, and employer contributions could be 3% of 'band' earnings.

duckson

Total Earnings i think.

Funny though as her previous wage was £11.88 per hour and min wage was £11.44 so the sal sac would of had her below min wage?