Salary SacrificePayroll vs. HR

Richard StewartCo-founder & CEO, Untangl ltd

1

Back to basics

what is salary sacrifice and why is it so popular with HR?

2

Choosing

How does an organisation choose which salary sacrifice benefits to introduce?

3

Popularity

What's popular in the market?

4

Systems

Admin and systems issues

5

Auto enrolment

It’s really a payroll thing, isn't it?

6

Questions

Agenda - Salary Sacrifice Payroll vs. HR

1:15 pm - 1:55 pm

About us

Welcome

25 years - employee benefits, 15 as a flex benefit specialist

Currently co-founder & CEO of start up, Untangl aimed at providing simple employee packages to growing companies

Before then:

Head of flexible benefits and platform services at Mazars in London who acquired a previous technology business, Redbourne where I was MD.

Back to basics

• Heaton vs. Bell 1969

• Must be a contractual change

• Reduction in pay

• Employee should not have discretion to opt back to previous salary

BUT

• lots of exceptions

What does this mean in practice?

• Provider agreements

• Record keeping

• Administration and system changes

• Introduction and communication of reference and notional salary

BUT

• Payroll not notified of salary reduction or instructions are not clear

• Not enough time given to set up system changes

• Legal and regulatory aspects not considered

Choosing - what makes a good salary sacrifice benefit?

• Available as an employer contract

• Exempt from income tax and National Insurance (NI)

• Exempt from income tax

• Exempt from NI

BUT

• Risks need assessing

Popularity

• Releasing tax savings example

• 500 employee company, average salary £30,000

• employee pension contribution of 5% of salary, £750,000 pa

• Switching to salary sacrifice brings salary bill down by £750,000, paid out as an employer contribution

• savings 13.8% for the employer or £103,500

• Offering benefits on a cost neutral basis

• Admin simplicity

List from Employee Benefits Annual Benefits Research 2014

Systems

Payroll cycle

Employee lifecycle

New Employment

General Events End of Employment

Join Modify Leave

Salaryadjustment

Benefitsadjustment

Generatepayroll Payment and

reconciliation

P11Dgeneration

recruit leave

employee data and events

cost elementsBenefits

InformationEmployee

information

Total Reward generation

EmployeeCommunication

Auto enrolment

• Introduction of new processes and probably new systems

• Intrinsically linked to the payroll process

• HR often focussed on the employee comms and pension provider selection process

• Salary sacrifice is being used heavily

• CIPD Reward Management report showed 29.2% of respondents were introducing it during 2012/2013

• Payroll challenge is to adapt to new rules, often in the absence of much support from HR

• Salary sacrifice on non-pension benefits can reduce qualifying earnings and 2 stage final run

• Employee benefit selection cut off dates need to be enforced with more rigour

BUT

• a chance for Payroll to add more value

• fits better with payroll process skill set

Where to get more information

• Gov.uk - Salary sacrifice and the effects on PAYE

• The Low Incomes Tax Reform Group (LITRG)

• Money Advice Service

• The Pension Advisory Service

• The Pension Regulator

Questions

Untangl limited22 Upper GoundLondon SE1 9PD

This presentation is based on our current interpretation of UK legislation and HMRC practice at the date of production.  This may be subject to change in the future and any tax rates or reliefs may be altered.  Professional advice should be sought prior to making any decision and Untangl limited does not accept responsibility for decisions taken on the basis of the information presented. The information presented does not constitute advice. The contents of this presentation are confidential and not for onward distribution.

© Untangl limited 2015

Richard Stewart07808 654202

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