What is Salary Exchange?
Salary Exchange is an agreement between an employee and their employer. The employee agrees to exchange part of their gross (before tax) salary in return for a non-cash benefit, like a pension contribution.
As the salary is being exchanged rather than paid directly, both the employer and the employee pay less National Insurance contributions.
How does it work?
The employee opts-in to the Salary Exchange agreement, this involves an amend to their terms and conditions of employment. The employee will choose an amount of money to exchange and their gross salary is then reduced by this amount.
For example, if an employee earns £25,000 each year and chooses to exchange £2,500, their salary would become £22,500. The exchanged amount is then paid direct to their pension plan as an employer contribution.
Some of the Key benefits of Salary Exchange
- Employers pay less National Insurance Contributions
- Increased pension for employees
- Increased take-home pay for employees
- Adding true value to the benefits package
- Greater flexibility
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