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Salary sacrifice pensions

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Summary

How to set up a salary sacrifice pension scheme for your employees in Sage Payroll.

Description

Create salary sacrifice payments, and read how salary sacrifice affects reports and payslips.

Resolution

What is salary sacrifice?

Salary sacrifice is an arrangement between an employee and their employer.

For pensions, the employee will reduce their pay by the pension contribution amount.

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

Using salary sacrifice means the employee pays less tax. 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 into the pension. They also pay 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

You first need to decide which payments to reduce by the sacrificed amount.

When you create a taxable and NIable payment, select the Salary Sacrifice checkbox. The check box is only available if a salary sacrifice pension is already created.

 NOTE: You cannot edit a payment already 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 article Create and manage payments.

How to set up a salary sacrifice pension scheme

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

Select a contribution type of Salary Sacrifice when adding a new pension or group to the payroll. Next, enter the employee and employer percentage contributions. 

Fixed-amount contributions are set up in your pay run. Select the employee. Select 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. You cannot use Salary sacrifice schemes in pay runs before the 2022/23 tax year. 

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

How salary sacrifice affects payslips and reports

In line with salary sacrifice guidance, sacrificed amounts don't show as a deduction. On the payslips, it shows as a negative payment.

The total pension contributions show as employer pension on the payslip. No value shows for employee pension.

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

On the payroll detailed report, the total pension contributions show as employer contributions.

Refer to our detailed report guide below:

Section 1The gross pay for the employee is here, minus the salary sacrifice amount.
Section 2The total salary sacrifice deduction is here.
Section 4The employer contribution is here. This includes the salary sacrifice figure. The employer paid this on the employee's behalf. 
Section 7There are no employee contributions to date. The employee has sacrificed part of their salary for their pension. Instead, this shows as salary sacrifice in the Pension Contributions Report.

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

The pension contributions reports have a salary sacrifice column. This is 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 article Pension reports.

Watch how to process salary sacrifice pensions


Related Solutions

For help creating a salary sacrifice payment, read our article Create and manage payments.