Zarah ChoudharyLess than half of employers offer salary sacrifice on pensions, missing out on National Insurance (NI) savings as increased NI rates take effect from 6th April, according to new research from Towergate Employee Benefits.
The firm’s annual study found that just 48% of businesses offer salary sacrifice for pension contributions, meaning many are losing out on a straightforward way to offset rising employment costs for both the organisation and its employees.
Sorangi Shah, client director at Towergate Employee Benefits, said employers not using salary sacrifice could be missing out on valuable savings.
Shah described the scheme as a tax-efficient way to reduce costs, particularly in light of the recent NI increases.
The likelihood of offering salary sacrifice increases with company size.
Only 38% of businesses with 20 or fewer employees currently offered it.
This has risen to 49% among companies with 21 to 249 employees, and to 67% for those with over 250 staff.
Towergate said it was surprised more businesses are not making use of salary sacrifice.
The company said there is scope for firms of all sizes to receive support in setting up or reviewing their arrangements, and that employers should consider seeking advice to ensure they are making the most of the options available.
Towergate has also developed a salary sacrifice calculator.
It showed that for an employee earning £30,000 and contributing 5% to their pension, the employer could save £225 in NI each year, while the employee would save £120.
Among companies that do use salary sacrifice, the research found variation in how employer NI savings are handled.
A third of employers give back all the savings to employees, 27% share a portion, 21% retain the savings in the business, 12% use them to fund other benefits, and 3% apply them to their benefits platform.
Shah said it was notable that a third of employers currently return all NI savings to their workforce, while only a fifth keep them within the business.
Sha also added that this could shift over time as employers look to protect their own budgets.
Towergate also advised that businesses already using salary sacrifice should take the NI increase as an opportunity to review their pension and salary arrangements to ensure they remain compliant and continue to offer value and employee engagement.
Shah concluded: “Salary sacrifice is also known as salary exchange, and this is perhaps a better term as neither the employer nor the employee is actually sacrificing anything.
“In fact, they both gain from reduced National Insurance contributions and the employee will gain from tax efficiencies.
“With all this in mind, it is certainly something worth considering.”
