An Employer’s Guide to Employee Salary Exchange
The fact remains that maximising profits and reducing operational costs are two of the most important objectives for business owners. However, as crucial as these objectives are, it is vital to note that the success of an organisation is not only measured by its margins and profits but also by the quality and welfare of its staff.
While a salary increase may seem the most obvious way to ensure staff feel valued and therefore retain them, it's not always achievable. So, many organisations opt to offer salary exchange for their employees, a benefit that can be a viable way for employees to manage living expenses and increase their pension contributions and for employers to enhance employees' welfare. If you're a business owner interested in knowing about it, read on.
Here, you will learn about salary exchange, how it works, and the benefits it offers you and your employees.
Salary exchange - a guide to what it is and how it works
Salary exchange is a voluntary agreement between an employer and an employee that requires the employee to give up a part of their earnings in return for non-cash benefits from their employer. These non-cash benefits come in the form of goods and services, healthcare, childcare, transport, or additional pension contributions, depending on the salary exchange scheme agreement. The idea behind this scheme is the enhancement of employees' welfare with minimal cost for you, the employer, and your employees.
To fully grasp what it is, imagine that one of your employees needs to cover the cost of childcare but can't afford the upfront costs; you pay for it and get a refund by gradually deducting the employee's salary. Much like an interest-free loan that offers far-reaching benefits to both parties. But how does salary exchange work exactly?
By offering a salary exchange, an employer creates an opportunity for employees to give up part of their salary to purchase some items or to increase pension contributions before their take-home pay is transferred to them. This way, the employer helps the employee to manage outgoing costs. However, in doing this, no matter how many items the employee hopes to get or the amount of pension they hope to add, their earnings must stay within the National Minimum Wage (NMW).
To meet the rules and regulations provided by HM Revenue and Customs (HMRC), employers can arrange this scheme by:
- Revising the T&Cs of employment between them and the interested employee.
- Ensuring that this revision establishes that the employee is entitled to lower salary and non-cash benefits by virtue of their salary exchange.
- Ensuring exchange must be for future remunerations and not cash already received.
- Keeping reports of all revised contracts in case they are required for audit purposes.
Benefits of Salary Exchange to Employers
While the benefits of salary exchange are obvious for employees, the same can't be said for employers, hence, the need to highlight the benefits this scheme offers employers. They include the following:
One of the many reasons employers shy from commitment towards employee welfare is because of the supposed costs that accompany it. However, with salary exchange, employers can avoid incurring high outgoing costs while providing non-cash benefits to their employees.
When employees exchange their salary, they pay less National Insurance Contributions (NICs). This allows employers to generate up to 13.8% savings per employee on a salary exchange scheme, enabling them to direct this money to other important areas of business operations.
Far-Reaching Opportunities for Employees
Another benefit salary exchange offers employers is that it helps them create so many opportunities for the employees. Through salary exchange schemes, employers can help employees attain a higher quality of life while reducing costs and easing the harsh effects of inflation.
As attractive as these benefits are, quality payroll management is a primary factor determining how many of these benefits employers will enjoy. Particularly with pension contribution salary exchange, it furthers the need for the processes to be handled by experts that manage payroll services. This is where Pay Check can help, irrespective of the size of your business.
Payroll management is a complex process which is why payroll outsourcing remains a fantastic option because industry-leading experts efficiently handle all intricacies involved in both salary exchange and overall payroll management. While many payroll service providers position themselves as experts, Pay Check offer more than just talk. Our vast network of satisfied customers we've created over time is evidence that you can get quality payroll outsourcing services in the UK without incurring overwhelming payroll outsourcing costs.
Now that you’ve identified the benefits you and your employees can gain from salary exchange, why not let the experts manage your payroll and necessary deductions? Contact Pay Check today to get a quote for services that will oversee the entire processes of your payroll management and salary exchange schemes.