How do I process a salary sacrifice deduction?
Article ID
11222
Article Name
How do I process a salary sacrifice deduction?
Created Date
22nd September 2020
Product
IRIS Payroll Professional, Earnie
Problem
I need to set up a salary sacrifice deduction for an employee. E.g for childcare vouchers or cycle to work scheme
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 scheme, cycle to work scheme, give as you earn scheme, etc.
To set up the deduction
Go to “Company” > “Alter Payments / Deductions“
Click “Add New” along the bottom of the next window.
Click “No” to the use the wizard.
Complete the “Name” this is how the deduction will show on the employees payslip, give the deduction an appropriate name.
Set the “Category” to “Apply Before Tax & NI Calculation“.
Set “+ or –“ to “Deduction”
Set “Type” to “Value”
“Report Group” can be left at <None>
The option for “Clear to-date totals” depends on your type of deduction. If there is a fixed amount to be paid choose the option “No Cleardown” or “When Total is Zero”. If this is an on-going deduction choose “Annually”
Click “OK” and then “OK” again.
Applying the payment to an employee.
Go to “Employee” > “Alter Current Employee”
Double click on their name to open their details.
Open the “Pay/Deds” tab.
Click on an empty line, open the drop-down menu and select the new deduction.
In the “Standard” column type the amount you want to take each period.
If there is a fixed amount to be paid type this in the “To-Date” column. E.g. the employee has a total of £800 to pay on the cycle to work scheme. 800.00 should be saved in the to-date column. Each time you process payroll this value will decrease by the deducted amount. Once this value reaches zero the deduction will stop.
Click “Save” and “OK“
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.
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