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.
Mum of four active children. Lover of skiing, marathons, kettle bells, family walks, random acts of kindness, movie nights, green tea and dark chocolate.