NHS workers across the country have had one of the most challenging years of their career, as many have put their lives at risk to save others during the pandemic. But many key workers are still struggling to make ends meet and find it hard to access affordable credit sometimes needed to tide them over to their next pay packet.
Keep reading to find out how Salad Money can help you with unexpected costs, as well as how the salary sacrifice scheme works and how it could benefit you.
What is the salary sacrifice scheme?
The way the NHS salary sacrifice scheme is designed means that a worker gives up a proportion of their salary in exchange for non-cash related benefits. For some, this can provide support with sometimes costly outgoings such as childcare and the expense of running a car.
The scheme also has other non-cash related benefits such as the cycle to work scheme, personal learning incentives, access to home computers or a gym membership. But since 2017, the government has removed the tax and national insurance exemptions from these non-cash benefits. Meaning, you may be entitled to childcare vouchers, but you’ll still be liable to pay a rate of tax on top of them.
Because the scheme reduces the contractual entitlement to a person’s salary, in some cases it can mean you pay less national insurance. This can be beneficial to the employee but might end up as more of a logistical nightmare for the employer.
How does the salary sacrifice scheme work?
The scheme is arranged between an employer and the employee with an agreed reduction on their annual salary entitlement, in exchange for their chosen non-cash benefits.
The employer has to cover the total cost and has the responsibility of reducing the salary over the agreed period. The salary will then be reduced, usually resulting in a lower tax and national insurance threshold.
However, none of this can be altered without the employee's consent and having it written down within their contractual agreement. Having this in writing means the contract must make clear what non-cash entitlements are given, and kept up to date depending on if an employee’s lifestyle dramatically changes - for example, they get married, are made redundant, or their circumstances change as a result of Covid-19.
What are the negatives of the scheme?
The NHS salary sacrifice scheme naturally reduces the amount earned by the employee which means their salary can have the potential to fall below the minimum income. If they are paid below the national living wage for employees over 25, the employer will have to make up the shortfall. If not, they have the potential to be fined up to £20,000 by HMRC.
It’s a scheme which on the surface, appears to have lots of benefits, but could end up costing both parties involved more in the long term.
Most significantly, changes to the NHS pension scheme from 2015 means that the pension contribution is calculated from a yearly earning amount, as opposed to a career average revalued earnings (CARE). This means that an employee’s annual salary amount matters far more for calculating their overall pension, and a reduction in this due to the scheme will result in a smaller amount paid towards their pension over a year.
Is salary sacrifice worth it?
The scheme has both positive and negative aspects, but, fundamentally, it can be useful if you are struggling with other costly commitments.
However, accepting childcare vouchers as part of the scheme might change your tax credits. In other words, if you are already getting tax credits for childcare, it may not be best to opt for the NHS sacrifice scheme, as based on recent government changes, you will have to pay tax on the vouchers given by your employer.
Earning less overall also has other implications - it could reduce the likelihood of attaining successful mortgage applications, reduce the amount of maternity pay and your life cover scheme could be less.
Additionally, there’s a lot more tax rules and regulations for the employer to keep on top of - and you could be putting your future pension at risk for the sake of a small, short-term saving. Despite this, if you do opt for the scheme, Salad Money will always be here to provide you with an extra financial cushion and support when needed.
Deciding whether or not to opt for the NHS sacrifice scheme is a tough call as there are lots of positives and negatives to consider. However, at Salad Money, we can give you free, accessible financial guidance through our MoneyMind service. Why not take a look and find out more?
Here to help
At Salad Money we provide small loans to meet people’s immediate needs, by offering key workers anywhere between £500 to £1000. Unlike other loan providers, we are not solely concerned with making a profit, but providing our borrowers with security when they need it most. We aim to put fairness and equality first, as any surplus profit we make is reinvested back into the business, and from this, we can then offer more loans.
We are directly partnered with NHS Trusts and public sector organisations to help employees and provide financial support for people working in the public sector to improve their financial situation and access to affordable credit.
Life is never predictable and we often don’t know what’s coming round the corner, whether that is a surprise bill you hadn’t quite budgeted for - or a car part that suddenly needs changing. At Salad Money, we strive to give key workers the loans they need and crucially, do not judge applicants by credit scoring but by their actual financial situation.
We know and understand that these are tough times and in life, we can’t always plan for everything. Even if it’s a small loan to help with your weekly food bill, we’re here to help.