Salary exchanges reduce the cost of auto enrolment

Many employers have already reached their auto enrolment staging date and many more have theirs to come and one question that tends to get raised regardless of the size of the company is; how can we reduce the cost of auto enrolment?

Employers will have to consider the cost of mandatory contributions, the cost of providing the scheme, the time cost of administration and the cost of professional advice. Many of these will be fixed and unavoidable; however, via an effective strategy called “Salary Exchange” we have helped many employers reduce the cost of auto enrolment.

A core aspect of our service offering is the recommendation and guidance in using salary exchange. Put simply, instead of an employee having pension contributions deducted from salary after tax, they can come to an agreement with their employer to reduce their salary by the amount of their pension contribution; the employer will then pay over the reduction in salary, as an additional employer contribution.

The advantage of utilising salary exchange is that employer pension contributions are not subject to a National Insurance deduction meaning both employer and employee can save money by eradicating National Insurance Contributions when only employer contributions are made.

The amount of National Insurance Contributions that could be saved can be quickly calculated by adding up the employee contributions and multiplying the sum by the employer National Insurance Contribution rate of 13.8%. Let’s have a look at an example:

  • Average employee salary £20,000
  • Average employee contribution rate x 5%
  • Annual employee contribution = £1,000
  • Active members x 50
  • Total = £50,000
  • Employer NIC rate x 13.8%
  • Annual employer NIC saving = £6,900
This demonstrates a significant saving, which can go some way to meeting the cost of complying with auto enrolment. With our advice and guidance, the process can also be made simple and efficient.

In addition to saving the employer money, employees also benefit by a reduction in their National Insurance Contribution, making it a mutually beneficial arrangement.

We have built the salary exchange process into our service offering for clients at no additional charge. We believe that the most effective way to operate salary exchange and auto enrolment is on a deferred basis whereby salary exchange takes effect after the auto enrolment “opt out” phase has concluded.

A crucial factor in making auto enrolment and salary exchange work together effectively is clear communication to employees. Using our experience, built up in assisting existing clients with operating salary exchange, we are confident we are in a position to help guide all employers through this process and to make sure it is a success for both the employer and their employees. If you would like a free discussion about how we can save you money through salary exchange and auto enrolment, please contact Paul Jackson on 01772 550764 or via email at, alternatively contact Craig Hugo on 01772 550774 or via email at who will be happy to assist with your queries.