What is Salary Exchange?
Salary Exchange can be used for benefits such as childcare, bikes for work and mobile phones, but the greatest potential saving can be made in connection with pension contributions. It involves employees agreeing to take a lower salary in return for a pension contribution. Because the salary is lower, national insurance contributions (NICs) payable by both employer and employee are reduced and both parties can also put some, or all, of what they have saved in NICs towards making additional pension contributions. Alternatively the employer can use their savings to fund additional employee benefits.
What are the benefits?
Salary Exchange allows the higher rate taxpayer to immediately increase the value of each personal contribution by 37.9%. This could be viewed as obtaining an immediate investment return of 37.9% on each and every contribution, a level of return that would be viewed as extremely high when compared with investment returns available over recent years. For basic rate taxpayers the increase to the value of each contribution is 17.65%. This factor combined with the importance of fund choice form the two key aspects of our proposition to our clients.
Portus has in-depth knowledge and experience in dealing with Salary Exchange and is able to provide all communication and assistance in respect of the implementation.
We strongly advise consideration of the benefits offered by Salary Exchange, and we are finding that it is often now being used when a salary increase is planned or a bonus is payable and there is an existing company scheme to which employees are contributing.
Salary Exchange funding Flexible Benefits
For those who are considering implementing Flexible Benefits, Salary Exchange arrangements can be used to fund implementation design and ongoing costs of a Flexible Benefits programme.