If you're considering setting up salary exchange as a way for your employees to make pension payments, there are some things you need to be aware of. These relate to two key changes:
- A reduction to your employees' annual pre-tax salaries
- Changes to your employees' contracts of employment
Both have implications for you and your employees. Some key points to consider are:
- Your payslips will need to display the amount of salary exchanged.
- HM Revenue & Customs take an interest in how tax and national insurance contributions are affected and they have published a full set of salary exchange guidelines on their website.
We've summarised the main points in our technical guide to salary exchange.
- Your employees' entitlement to statutory benefits and other salary-related benefits may be affected by their reduced gross salaries and you'll need to make your employees aware of how they may be affected (the relevant benefits and potential impacts are listed in our member guide).
- You may want to retain a notional salary for your employees (this is the salary before exchange). By doing so, employees' pre-exchange salaries may be taken into account by mortgage lenders, and when entitlement to other salary-related benefits is calculated.
This is based on our understanding of current tax laws. These laws and our understanding of them may change in the future.
Tax treatment will depend on the individual circumstances of each employee and may be subject to change in the future.