Salary sacrifice is an effective way of delivering tax- and national insurance (NI) contribution-free benefits, such as childcare vouchers, bikes for work, extra pension contributions and mobile phones: perks that employees would like to have, but their employer cannot afford to pay for.
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- Work-related training offered through a salary sacrifice arrangement brings national insurance savings for employers and employees.
- The training must be work-related, but it can be extended to include language or IT courses, for example.
- Offering training in the workplace can boost employee engagement and motivation.
In the current economic climate, with many employers having to curb their spending on staff training, work-related staff training offered through salary sacrifice is proving popular with employees, allowing them to continue their professional development in the most cost-effective way.
Under the terms of a salary sacrifice agreement, the organisation would not have to pay employer’s NI on the value of the training course provided, and the employee would not attract any deduction of tax and NI.
However, the financial savings are only part of the appeal of such schemes, says Matthew Gregson, managing consultant at Thomsons Online Benefits. “The fact that the costs are spread out, with payments made over a defined period, usually a year, and the fact that this is also a great way for staff to gain skills and qualifications they can bring into the workplace and benefit the organisation, have made this an increasingly popular option,” he says.
Salary sacrifice eligibility
In terms of being eligible for salary sacrifice and tax savings, ‘work-related training’ is defined as a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities that are likely to prove useful to the employee when performing their duties of employment, or will qualify or better qualify the employee to perform those duties.
Typically, work-related training might include courses for those in professional careers, such as finance and accountancy, HR and project management. But the loosely framed definition of work-related training means it can quite easily be extended to areas such as languages, relevant for employers with overseas expansion plans or international customers; technology and computer-based qualifications, a significant subject given the UK’s current IT skills shortage; and postgraduate business management qualifications.
Mo Desai, director of HR services at PricewaterhouseCoopers, says: “Employers have really cut back on their training budgets, so now that the employee has to pay for part of it or, in some cases, all of it, salary sacrifice is the way to go. The savings on a masters degree in business management, for example, which is a qualification of huge value to both the individual and the organisation, are quite significant. On a one-year programme that costs £9,000, paying for it via salary sacrifice would save the employee £3,780 in tax and NI, and the employer £1,242 in NI.”
There is an element of risk management to consider in providing training via salary sacrifice. If an employee was to leave the organisation before the training is completed, they would be expected to reimburse their employer if it has paid for the full course.
When offering training through salary sacrifice, employers also need to be aware of breaching the lower earnings tax thresholds, and ensure course costs are appropriate.
Employee savings
Some might argue that employees who previously had all their work-related training paid for by their employer may resent having to stand all the costs themselves. But as James Malia, head of employee benefits at P&MM, points out, it all comes down to the way the proposition is made by the employer.
“We are seeing a great deal of interest in what has been a relatively new area of salary sacrifice for us,” he says. “Generally speaking, the things that are offered to staff through salary sacrifice are things they would be paying for anyway, such as childcare, bikes and mobile phones. Training and development also has huge value to the individual in terms of career enhancement and progression. If it is presented to employees in this way, while also highlighting the savings they can make, they will see the benefits.”
Having demonstrated a commitment to staff training and development, employers need to follow this up by ensuring they offer their staff the right opportunities to use their new skills and expertise. Malia adds: “This is a great retention tool that promotes loyalty and boosts employee engagement, but unless they also provide the right jobs for their skilled and qualified people, employers risk losing them.”