Salary Exchange: The Forgotten Employee Benefit Saving Companies Thousands Each Year

Employee Benefits – could salary exchange save your business money as well as helping with retention and recruitment?

In my 23 years in the financial planning industry, it still amazes me today how many companies are not using salary exchange.

It is no secret that many companies are working on tight budgets due to the current inflationary pressures, and so it can be difficult to justify expensive employee benefits to aid recruitment and retention. However, there can be huge monetary and emotional benefits for both employers and employees by focusing on employee engagement and optimising your workplace pension scheme (WPS) with the use of tools such as salary exchange.

Salary exchange is a tax-efficient way for employees to fund their pension, as they receive their full marginal rate of Income Tax relief at source (most schemes require higher rate taxpayers to reclaim 20% from HMRC) and save National Insurance Contributions (NIC) on the value of their payment. For a basic rate taxpayer, this means it costs them £68 for every £100 invested.

As for employers, the company will save employer NIC on the value of the employee’s gross contribution. This equals 13.8%, meaning the company saves £13.80 every month for every £100 contributed by an employee which can add up to a significant amount.

Recently, an Oxfordshire-based client got in touch regarding their WPS as they were dissatisfied with the level of service from their previous Independent Financial Adviser. The first step was to review their existing scheme in detail and, as a result, we realised it was no longer competitive in the market and not set-up as effectively as possible for their employees. In addition, they were not utilising salary exchange.

The decision was then made to change scheme provider and introduce salary exchange, as well as offering staff presentations and 1-2-1 clinics to boost employee engagement and increase their understanding of this employee benefit.

As a result, the new scheme will start with a 100% uptake rate of salary exchange, creating an employer NIC saving of £14,500 every year. This comfortably covered the cost of the fees involved, and the remainder will be used towards further employee benefits in the future.

Aside from the monetary value, this created a buzz with employees – which is no easy task when talking about pensions – and helped reinforce the financial benefit in their take home pay.

Employees also stepped away from clinics and presentations feeling more confident in their understanding of their pension and their financial situation. Furthermore, the new pension provider offers better tools for staff to interact with their pension, understand their current provision, and help them to plan for what their retirement may look like.

Overall, the initial pension scheme review went on to offer great emotive and monetary returns for both employees and employers. As HR teams across all sectors continue to battle with recruitment and retention, optimised and cost-effective employee benefits such as this can really go a long way to help.

We are currently working with many other clients to review their workplace pension schemes and assess whether salary exchange would be a good option for them to implement.

Please do not hesitate to get in touch with an Integrity365 corporate specialist Independent Financial Adviser on 0117 450 1300 if you would be interested in a free initial audit of your workplace pension scheme to see how we could possibly improve your offering for both your company and employees.