Employee Benefits
Salary Exchange Calculator
Calculate the benefits of salary exchange for both employees and employers.
Two big changes to Employer NI were introduced in the Autumn Budget
- Employers National Insurance will increase from 13.8% to 15% in April 2025
- The rate at which the employer must start paying employer NI will reduce from £9,100 per annum per employee to £5,000. This change in isolation is an additional £615 cost per employee per year, without taking into consideration the 1.20% increase on all salaries going from 13.8% to 15%
What is Salary Exchange?
A salary exchange arrangement enables employees to exchange part of their salary for a non-cash benefit from their employer, such as pension contributions. Salary Exchange is also sometimes referred to as Salary Sacrifice.
How does Salary Exchange Work?
An employee agrees to reduce their salary by an amount equal to their pension contribution. And in exchange, the employer then agrees to pay the employee’s salary exchange as an additional employer pension contribution.
Benefits of Salary Exchange
Employer
The employers saving can be passed onto the employees as additional pension contributions, or it could be retained by the employer to facilitate the purchase of additional employee benefits (other options available). The example below is based on a 5% employee and 5% employer contribution of basic salary.
Employee
The employee will save 8p for each £1 they exchange for earnings between £12,570 and £50,270, and 2p per £1 for earnings above £50,270.
The employees’ saving can either be added to their pension pot or used to increase their take-home pay (as per below example). With the compounding increase to employees living costs, this can be seen as a great benefit.
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Thomas Carroll Employee Benefits
| Employee | Before Exchange | After Exchange |
|---|---|---|
| Gross Pay | £30,000.00 | £28,500.00 |
| Income Tax | £3,186.00 | £3,186.00 |
| Employee NIC | £1,394.40 | £1,274.40 |
| Employee Pension (5%) | £1,500.00 | £0.00 |
| Take Home Pay | £23,919.60 | £24,039.60 |
| Employer | Before Exchange | After Exchange |
|---|---|---|
| Salary | £30,000.00 | £28,500.00 |
| Employer NIC | £3,750.00 | £3,525.00 |
| Employer Pension (5%) | £1,500.00 | £3,000.00 |
| Total Employer Cost | £35,250.00 | £35,025.00 |
Total employer saving of £22,500.00
| Employee Annual Savings | £120.00 |
| Employer Annual Savings (per employee) | £225.00 |
| Total Employer Annual Savings (100 employees) | £22,500.00 |
This calculator should not be regarded as giving any form of advice and is a guide only.
Next Steps
To find out more about how Salary Exchange could benefit your business, please contact our team at eb@thomascarroll.co.uk