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A lot of households in the UK are struggling due to the cost of living crisis. With an increase in National Insurance and rising petrol and energy prices, many people are having to stretch their income more than they would have done previously. Thankfully, ‘salary sacrifice’ can help.
Over Half of Employees Are Worried About The Rising Cost of Living
According to research from Cushon, more than half of people asked are worried about the rising cost of living. Less than a quarter of people studied admitted to feeling confident about the state of their finances going into the second half of the year, whilst another quarter are worried about affording bills.
Despite many employers factoring the rising cost of living into annual pay reviews, there is still more that can be done to help employees during the potential financial hardship. For example, employers could offer webinars and sessions focused on improving financial health. Not only could this help employees, but it’s also beneficial to businesses. This is all linked to greater employee wellbeing. Employees that are better able to manage the financial strain of the rising cost of living are likely to be more productive at work, and they are more likely to showcase company loyalty.
It’s not just day to day purchases that many employees are struggling with, 54% of those asked say the rising cost of living is preventing them from saving as much as they would like. To avoid pension problems in retirement, employees in the UK need to save as much as possible, and this is something that employers can help them with.
How Does ‘Salary Sacrifice’ Work?
‘Salary Sacrifice’ is something that a lot of larger employers are already offering, but it’s something that many SMEs have yet to adopt. When an employee choses ‘Salary Sacrifice’, they agree to reduce their salary by the same amount as they pay in pension contributions. Instead of going to the employee, the amount gets added to their pension contributions by the employer. This means that both the employee and employer can pay lower NI.
Due to reduced NI payments, the employee’s take home pay is actually higher, despite the solution implying that they are sacrificing some of their salary. On paper, their salary appears lower, but this is not the case. Plus, the pension contributions remain the same.
At the moment, only 63% of people are aware of ‘Salary Sacrifice’ and the benefits it has. Of the people that are aware of it, only 34% of those with a workplace pension contribution use it. This is largely due to the fact that the term implies something negative, and many assume that their income will reduce on paper.
As well as benefiting employees, ‘Salary Sacrifice’ also has a major advantage for employers. A reduction in an employee’s pay also reduces the employer’s NI contribution, and this can cut the cost significantly. At the moment, only 41% of SMEs and 61% of larger businesses offer ‘Salary Sacrifice’, despite it being a mutually beneficial agreement.
With the increase in NI costs, employers are now paying 9% more than they were previously, a figure they could reduce by offering ‘Salary Sacrifice’ to employees. By offering it, they are not only helping employees who are struggling with the rising cost of living, but they are also helping to reduce their own outgoings. Plus, this could also help create a stronger relationship between the two parties.‹ Back