How to use the % of gross for salary sacrifice method

BrightPay now includes a calculation method for deductions: % of gross for salary sacrifice. This allows you to set up salary sacrifice deductions so that they are calculated as a percentage of specific pay items that contribute to “gross for salary sacrifice”.

This article explains:

• How BrightPay calculates the salary sacrifice amount
• How to mark pay items as Contributes to gross for salary sacrifice
• How to create a new deduction type using % of gross for salary sacrifice
• How to adjust an existing deduction to use this method
• Salary sacrifice settings on pension schemes

• Limitations

   

Before you start

Before you set up a salary sacrifice deduction, mark the pay items it should be based on. If no pay items are marked as Contributes to gross for salary sacrifice, the deduction will be 0.00, and so will the matching amount added to the employer contribution.

This setting only affects deductions that use the % of gross for salary sacrifice method (see the Limitations section below).

How BrightPay calculates “% of gross for salary sacrifice”

When you use the % of gross for salary sacrifice method:

• BrightPay calculates the deduction as a percentage of the pay items you have marked as Contributes to gross for salary sacrifice. This can include hourly rates, daily rates, piece rates and additions. 

  You choose which ones to include, and you can tick or untick this setting at any time.  

  Statutory pay (such as SMP and SSP) and notional pay are excluded from gross for salary sacrifice. 

Marking pay items as “Contributes to gross for salary sacrifice”

To control which pay items are included in the salary sacrifice calculation, you can mark specific global pay elements to Contribute to gross for salary sacrifice. The deduction is calculated only on the pay items you mark, so make sure you complete this step before creating or updating a salary sacrifice deduction.

At Employer level (global pay elements)

You can do this for pay items set up as global rates/additions:

1. Go to Employer and open one of:

   • Hourly Rates
   • Daily Rates
   • Piece Rates
   • Additions
    
2. Select the relevant rate or addition.
3. Under Additional Settings, tick Contributes to gross for salary sacrifice.

Any employee using this rate/addition will then have those amounts included in the gross for salary sacrifice calculation.

On an individual payslip

You can also adjust this on a per-employee basis:

1. Open the employee’s payslip in Payroll.
2. Locate the relevant rate or addition.
3. Click the spanner icon to the right of the description.
4. Tick Contributes to gross for salary sacrifice.

This allows you to fine-tune which pay items are included in the salary sacrifice gross for a specific employee.

Creating a new salary sacrifice deduction type

To set up a new deduction using the % of gross for salary sacrifice method:

1. Go to Employer > Deduction Types.
2. Click Add.
3. Enter a Name for the deduction (for example, “Pension Salary Sacrifice”).
4. Set the Calculation Method to % of gross for salary sacrifice.
5. Enter a Default % to be used for the deduction.

Under Usage, choose one of the following:

• Include in the period it’s added to only – the deduction will apply only in the current pay period.
• Repeat each period until removed – the deduction will continue automatically each period until you remove it.

Liability settings for salary sacrifice

Once you select % of gross for salary sacrifice as the calculation method, the following applies in the Liability section:

• The checkboxes Deduct before tax and Deduct before NIC are linked for this method and cannot be changed independently.
• You can optionally tick:
  • Deduct before employee pension
  • Deduct before employer pension

These optional settings control whether the salary sacrifice deduction is applied before employee and/or employer pension contributions are calculated.

Then, in the new SALARY SACRIFICE section, tick Treat as salary sacrifice.

When this is ticked:

• The deduction is always deducted before tax and NICs. 
• Salary sacrifice is typically used where the employee receives a tax-favourable benefit in lieu of cash pay (for example, employer pension contributions or other qualifying benefits).

BrightPay will treat this deduction as a formal salary sacrifice arrangement and will ensure that it is processed correctly for tax and NIC purposes.

Adjusting an existing deduction to use salary sacrifice

You can edit an existing deduction type to use the new method either at employer level or directly on an employee’s payslip.

Option A – From Employer Deduction Types

1. Go to Employer > Deduction Types.
2. Select the relevant deduction type on the left-hand side.
3. Edit the deduction settings to:
   • Change Calculation Method to % of gross for salary sacrifice, and

   • Tick Treat as salary sacrifice if applicable.

      

Option B – From the employee’s payslip

1. Go to Payroll.
2. Select the employee.
3. On the open payslip, locate the deduction you want to change.
4. Click the spanner icon to the right of the deduction.

You will then see the deduction settings for that employee:

• Confirm or change the Calculation Method to % of gross for salary sacrifice.
• Tick Salary Sacrifice – Always deducted before tax and NICs if you wish to treat this deduction as salary sacrifice. This is the same setting as Treat as salary sacrifice in Employer > Deduction Types.

Salary sacrifice settings on pension schemes

When you add or edit a pension scheme in BrightPay, you will see a new Salary Sacrifice section.

Default handling of salary sacrifice

You’ll be asked:

By default, should salary sacrifice deductions be added to the employer contribution for this scheme?

You can choose from the following options:

• No (default)
  Salary sacrifice deductions are not automatically added to the employer contribution. You can still manually adjust employer and employee pension contributions on each payslip if required.
• Yes, all
  The full amount of the employee’s salary sacrifice deduction will be added to the employer contribution.
  On the payslip, this will appear as a separate employer contribution line for transparency.
• Yes, but up to a limit
  You can enter a default maximum amount of salary sacrifice that can be treated as an employer contribution for this scheme.
  Any salary sacrifice up to that limit will be added to the employer contribution. Anything above that limit will not.
• Yes, but only the amount over a limit
  You can enter a default amount to reserve for other use.
  Only the salary sacrifice amount above this reserved figure will be added to the employer contribution for this scheme.

If you are using salary sacrifice with pensions, the most common setting will be “Yes, all”.
With this option selected, BrightPay will automatically calculate the employee’s salary sacrifice amount and include it within the employer contribution, shown as a separate line on the payslip.

Employer NICs saving option

Once one of the Yes options is selected in the Salary Sacrifice section, an additional setting will appear:

Default handling of employer NICs saving

When this option is ticked:

• BrightPay will calculate any employer NICs saving that arises from salary sacrifice deductions.
• This NICs saving will be added to the employer contribution and shown on the payslip in the Employer contribution from salary sacrifice section.

Default behaviour for new schemes and employees

The settings you configure on the pension scheme will be used as the default for any future schemes that you add to employees’ payslips/records.

This default will also apply to:

• Newly added employees
• Employees who are set for re‑enrolment, where relevant

Existing schemes and payslips

If you were already using pensions with salary sacrifice in BrightPay before this update:

• Existing payslips will continue to use the previous settings.
• The new defaults will only apply to schemes created (or updated) after you make changes in the Pension setup.

There is no global mid‑year change option for existing employees and schemes. This is because not all employers will want to use the new settings in the same way.

Updating individual employees

If you want to apply the new salary sacrifice behaviour to existing employees:

1. Open the employee’s current payslip.
2. Click the spanner icon to access the pension settings.
3. Choose the preferred salary sacrifice option (for example, Yes, all).
4. Tick the Employer NICs saving option if you want NICs savings to be added to the employer contribution.
5. Save the changes.

These steps need to be repeated for each individual employee where you want to change the pension salary sacrifice handling. Once updated, the scheme settings will then apply for future payslips for that employee.

Limitations

The Contributes to gross for salary sacrifice tickbox only affects deductions that use the calculation method: % of gross for salary sacrifice.

If the deduction uses any of the following methods, the tickbox has no effect on that deduction’s calculation:

• % of gross pay – no effect
• % of AE qualifying earnings – no effect
• Basic amount or % of Basic amount – no effect
• % of Net Pay – no effect

Check that your deduction uses the % of gross for salary sacrifice method and that the right pay items are marked.