Salary sacrifice means that an employee agrees to give up some of their monetary
payment in return for another benefit such as Childcare Vouchers or Cycle to Work
scheme.
The deduction is taken from an employee's Gross Pay before Income Tax and National
Insurance (NI) contributions are applied, therefore saving the employee some Tax
and NI.
The Council also makes a saving by paying less employee NI contributions.
Example
Jack earns £1200 per month – after tax and NI his take-home pay is about £800. He
arranges to "sacrifice" £100 per month in return for Childcare Vouchers. Tax/NI
contributions are calculated on Jack's remaining salary of £1100, so his take home
pay is £734.
Although Jack has a reduction in take-home pay of £66, he has gained £100 of Childcare
Vouchers - in effect he has paid £66 for £100 worth of vouchers.
Please note
A very small minority of staff – typically those on a low income
- may find that salary sacrifice leads to a reduction on your benefits. Please seek advice from DWP or HMRC for your individual circumstances.