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How do I process a salary sacrifice deduction?

Article ID
11224
Article Name
How do I process a salary sacrifice deduction?
Created Date
1st April 2019
Product
IRIS Earnie IQ
Problem

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

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 etc.


To set up the deduction

  • Go to “Company” > “Alter Payments / Deductions

  • Click “Add New” right hand side 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 “Payment or Deduction” to “Deduction

  • Set the “Category” to “Apply Before Tax & NI Calculation“.

  • Set “Type” to “Value

  • Range Check” can be left at <None>

  • 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 “Close“.


Applying the deduction to an employee

  • Go to “Employee” > “Select 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 amount 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 if the employee has £800 to pay on the cycle to work scheme type 800.00 into the To-Date column

  • 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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