Salary sacrifice is a popular way for employees to save money on taxes and increase their net income – but what about the financial health of an employee’s family? Are salary sacrifice schemes really a wise financial decision for them?
What Is A Salary Sacrifice Scheme?
A salary sacrifice scheme is an agreement between an employer and an employee to reduce the gross salary of the employee in exchange for a non-cash benefit. This can include additional contributions towards pension plans or health insurance plans, childcare, among other benefits.
Benefits For The Employee
Let’s examine the numerous benefits of a salary sacrifice scheme for the employee:
1. Reduced Tax:
Depending on the type of benefit, a salary sacrifice scheme can reduce the employee’s tax burden substantially by allowing them to make additional contributions above the standard allowance. This can result in a lower taxable income for the employee and potentially reduced taxes.
2. Increased Net Income:
As a result of reduced taxes, an employee’s net income may increase. This can be of great benefit to those who live paycheck-to-paycheck and may allow them to save more money for their family’s future.
3. Long-Term Benefits:
Often, salary sacrifice schemes are made available with long-term financial benefits in mind, such as additional contributions towards a pension plan that can help secure the employee’s retirement.
4. Additional Perks:
Employers may also offer bonus perks, such as additional vacation days or a gym membership, that are available through salary sacrifice schemes.