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How do I process a salary sacrifice deduction?

Article ID
11221
Article Name
How do I process a salary sacrifice deduction?
Created Date
20th November 2019
Product
IRIS Payroll Business, IRIS Bureau Payroll
Problem

I need to set up a salary sacrifice deduction for an employee. E.g. for childcare vouchers or Cycle to work scheme, give as you earn scheme etc.

For further legislation information about salary sacrifice schemes, check gov.uk here.

Please Note: Salary Sacrifice pensions are not covered in this KB. Non AE Pensions are configured from "Company"|"Payments & Deductions"|"Configure Pensions". For AE Pensions use the configuration tool found in "Pension"|"Auto Enrol Config Tool", see KB here for details.

Resolution

Salary sacrifice deductions are gross pay deductions that give the employee relief on tax and NI contributions.

Commonly these are used for childcare voucher schemes, cycle to work schemes, give as you earn etc.

If you are unfamiliar with salary sacrifice deductions we recommend you read this short guide first:

Salary Sacrifice – the basics


To set up the deduction

Go to “Company” > “Payments & Deductions” > “Configure Payments & Deductions

Click “Add New” along the bottom of the next window.

Complete the “Name” this is how the deduction will show on the employees’ payslip, give the deduction an appropriate name.

Set the “Type” to “Deduction“.

Tick the “Taxable” and “NIable” check boxes.

Set the “Method” to “Value“.

Click “Save” and “OK” and then “Close

Example of a salary sacrifice deduction

Apply to an employee

Double click on their name to open their details.

Go to “Pay Elements” > “Pay Deds

Click on the line with the name <None>, open the drop-down menu and select the new deduction:

In the standard amount column type the amount you want to take each period.

If there is a fixed amount to be paid type this in the “Year-To-Date” column. E.g. If the employee has £800 to pay on the cycle to work scheme type 800.00 into the “ear-To-Date” column.

Click “Save” and “Close

The next time you process pay for this employee the deduction will reduce their gross pay.

NOTE: The employee’s gross pay is reduced as part of a salary sacrifice scheme. This means that any benefits which are based on the employee’s gross earnings may be affected, such as pensions, tax credits and maternity pay. If the salary sacrifice takes an employee’s earnings below the LEL, for example, she may not be entitled to SMP. Also, any personal financial arrangements which are based on the employee’s gross pay, such as mortgage offers or other loans, may be affected.

Please Note: Salary Sacrifice pensions are not covered in this KB. Non AE Pensions are configured from “Company“|”Payments & Deductions“|”Configure Pensions“. For AE Pensions use the configuration tool found in “Pension”|”Auto Enrol Config Tool”, see KB here for details.

Thank you for your feedback.

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