Salary sacrifice pensions

If you have a salary sacrifice pension scheme for your employees, you can easily set this up in Sage Payroll.

This article explains:

  • What salary sacrifice is.
  • How to create a salary sacrifice payment.
  • How to set up a salary sacrifice pension scheme.
  • How salary sacrifice affects payslips and reports.

What is salary sacrifice?

Salary sacrifice is an arrangement between an employee and their employer. For pensions, the employee agrees to reduce their pay by the same amount as their pension contributions.

In return, the employer agrees to pay the total pension contributions.

Using salary sacrifice means the employee pays less tax, and both the employee and employer pay less National Insurance.

For example, Alex has a salary of £30,000 a year and contributes 5% into their pension. Alex's employer contributes 3%.

This means Alex contributes £1,500 and their employer contributes £900, for a total contribution of £2,400.

Alex agrees to sacrifice £1,500 of their salary, which reduces to £28,500. Their employer pays the sacrificed amount directly into the pension, along with their employer contribution.

Alex then pays tax and National Insurance on their reduced salary of £28,500, saving money on both.

How to create a salary sacrifice payment

To process salary sacrifice pensions in Sage Payroll, you first need to decide which payments to reduce by the sacrificed amount.

When you create a payment that is subject to both tax and National Insurance, to include it in the salary sacrifice pension contribution, select the Salary Sacrifice checkbox.

Note: You cannot edit a payment used in a completed pay run to select the Salary Sacrifice checkbox. You'll need to create a new one.

If you need help creating this payment, read our create and manage payments article.

How to set up a salary sacrifice pension scheme

The next step is to set up your salary sacrifice pension scheme.

When you add a new pension plan or group in Sage Payroll, you can choose Salary Sacrifice as the contribution type, then enter the employee and employer percentage contributions.

If you want a fixed amount for your salary sacrifice contribution, when you process your pay run, from the Manage Enrolment drop-down menu, select Manage Contributions, then change the contribution to Fixed.

Note: You cannot update an existing pension plan or group to be a salary sacrifice scheme. You'll need to create a new one. Salary sacrifice schemes cannot be used for pay runs before the 2022/23 tax year.

If you need help setting up this pension, read our set up pensions article.

How salary sacrifice affects payslips and reports

In line with salary sacrifice guidance, the sacrificed amount shows as a negative payment on the payslip, rather than a deduction.

As all contributions are made by the employer, the total pension contributions show as employers pension on the payslip. No value shows for employee pension.

If you need help with payslips, read our payslips article.

As with payslips, on the detailed payroll report, the total pension contributions show as employer contributions.

If you need help with the detailed payroll report, read our detailed payroll report article.

The pension contributions reports have a salary sacrifice column to show the amount sacrificed by each employee. The total pension contributions show as employer contributions.

If you need help with pension reports, read our pension reports article.

Watch how to process salary sacrifice pensions

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