As per HMRC guidelines, a salary sacrifice arrangement (salary exchange) is an agreement between an employer and an employee to change the terms of the employment contract to reduce the employee’s entitlement to cash pay. This sacrifice of cash entitlement is usually made in return for some form of non-cash benefit i.e. pension contributions etc.

If this happens, the employee gives up part of their salary and the employer pays this straight into the pension. In many cases the employer will take the amount that they save on employer’s NIC and pay this into the pension, thereby increasing the employee’s pension pot. 

Where salary sacrifice is being used, there will only be an employer’s contribution. The employee’s deduction is zero. Also, salary sacrifice cannot reduce an employee’s pay below the minimum wage.

Some AE schemes may not be able to accept salary sacrifice and it will be important to check with your proposed pension provider.

The following provides general guidance on how a salary sacrifice arrangement can be applied in BrightPay once an employee has been enrolled into a qualifying AE pension scheme:


 

1) Within the Payroll utility, select the employee in question to access their payslip

2a) Under Pay and Benefits, enter the employee’s gross pay before salary sacrifice deduction




 

2b) Should the employee have additional pay items added to their payslip e.g. further additions and deductions, users can instruct whether these are to be taken into consideration or not when ascertaining the pensionable gross amount. Simply click the spanner symbol next to the amount in question and tick/ untick the pension options required.

3) Under ‘Additions and Deductions’, now click ‘Add’ and select the preset deduction 'Salary Sacrifice'


 

 4) Use the spanner button in order to select the appropriate calculation method, in line with the arrangement entered into. Then enter the appropriate amount/percentage required. Please note: some calculation methods may not suit every scenario

 

Please note: by clicking the 'spanner' button, users can also instruct the pension deduction to be calculated on the amount before or after the salary sacrifice deduction, as required. 






 

5) After enrolling the employee into the applicable AE qualifying pension scheme in BrightPay, enter the employer pension contribution required, as per the agreement entered into. 

For assistance with setting up your pension scheme in BrightPay, including setting the qualifying earnings that apply, please see our support documentation on 'Entering your Pension Scheme in BrightPay'.


Please note: under a salary sacrifice agreement, there will only be an employer’s contribution. Therefore the employee contribution must be set to zero.





 

Using the drop down menu, a fixed amount can also be entered for the employer contribution, as an alternative to entering a percentage:

Please note that any salary sacrifice arrangement for pension contributions must NOT reduce an employee's pay below the National Minimum Wage (or National Living Wage) applicable to their age. 

The Salary Sacrifice amount will show under the 'Deductions' section of the payslip:

Note: Salary Sacrifice amounts will not automatically appear on the Pensions report in the Analysis section. To add salary sacrifice to reports, when generating the report > go to 'Add/remove columns' > Employer Items > select 'Salary sacrifice' under Employer deductions. Run the report. To save these settings, click 'Save as template' once the report has been generated.

BrightPay cannot calculate the employer NIC savings for salary sacrifice, this will have to be calculated manually. To add the employer NIC savings to the pension contribution, enable the AVC and then enter the employer saving £ amount in the employer AVC field.

Salary sacrifice calculation method — controlling what is included

When setting up a salary sacrifice in BrightPay, the calculation method determines what pay elements are included in the base figure used to calculate the sacrifice amount. There are three options:

• % of gross pay — this is the default. BrightPay looks at all pay elements, additions, and deductions when calculating the sacrifice amount. If you have multiple pay elements (such as a car benefit, commission, or overtime) these will all be included in the gross figure.
• % of basic pay — select this if you want the sacrifice to be calculated on basic pay only, excluding other additions and deductions. To change the calculation method, click the spanner icon next to the salary sacrifice entry and select % of Basic Pay. This will only include elements in the Pay & Benefits section.
• Fixed amount (£) — if neither of the above options gives you the correct result — for example, if you want to include some elements but not others — BrightPay does not support a partial selection. In this case you will need to manually calculate the correct sacrifice amount outside BrightPay and then set the calculation method to Fixed Amount, entering the pound value directly.

There is no facility in BrightPay to cherry-pick individual pay elements for inclusion in the sacrifice calculation — it is either all gross pay, basic pay only, or a manually entered fixed amount.