AdvizerTech
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Employee Benefits

Salary Exchange

What is salary exchange?

Salary exchange is an arrangement where an employee gives up part of their future earnings or bonus in exchange for a non-cash benefit. This is particularly relevant and effective for pension contributions.

How does it work?

As salary is being Exchanged rather than paid, the employee does not pay National Insurance Contributions on the exchanged amount. In addition, the employer does not pay NICs on the amount of salary exchanged either. Therefore, the exchanged amount can be paid into the employee's pension plan as an employer contribution.

What are the benefits of salary exchange?

  • Since the employee's pre-tax salary will be lower, this results in a reduction in the amount of NICs the company pays. This would currently save 13.8% on the exchanged amount.
  • The employee will benefit from exchanging part of their salary towards providing for their retirement and at the same time benefit from reduced NICs. This saving can be used to enhance their pension contribution or increase their take home pay.
  • Introducing salary exchange can improve employees' perception of their benefits package. This is the case particularily where the employer agrees to re-invest some or all of their NIC savings to further increase pension contributions for the employee.

    AdvizerTech can help employers make the right choices when setting up an salary exchange arrangment.

    The tax treatment is dependent on individual circumstances and may be subject to change in the future.
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