Prior to April 2017, both employee and employer were able to make a saving in Class 1 National Insurance Contributions on benefits that were offered through salary sacrifice.
The employee was also the recipient of a PAYE tax saving, and employers therefore sacrificed anything they could.
Due to this, HMRC looked to tighten the salary sacrifice rules and in April 2017 brought in Optional Remuneration Arrangement (OpRA).
OpRA will apply in one of two scenarios: when an employee enters a salary sacrifice arrangement for a taxable benefit in kind (BIK) provided by their employer, or if an employee is offered either cash or an alternative benefit in kind.
The following are exempt from OpRA rules, and still attract the full PAYE tax and Class 1 NIC savings:
- pension contributions
- employer provided pensions advice
- workplace nurseries
- childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018
- bicycles and cycling safety equipment (including cycle to work)
- company cars with emissions of 75g/km or less, including electric vehicle leasing options currently available
Any salary sacrifice arrangements that are entered into between an employer and an employee will require a change in the terms of the employees’ contract of employment.
An employment law specialist should be consulted when looking to alter an employee’s contract.
If an employee enters a salary sacrifice arrangement, the employer must ensure that any deductions do not take the employee below the National Minimum Wage (NMW) rates for the period that the deduction has been taken.
The Payroll Team at Pierce can help with any questions you may have. Please contact us.
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