Salary Sacrifice
Salary Sacrifice
There’s more than one way to crack an egg and the same applies to pensions! This can lead to some great savings for nannies and employers if your nanny payroll company knows their stuff!
Workplace pensions are now a standard part of any working relationship, with commercial employers taking full advantage of more tax efficient options through their payrolls.
The nannying industry, a naturally unique sector of workers, has however remained dominated by a single method of pension calculation so many may be missing out on some big savings.
The most common type of Nanny pension (and the standard Nest set up) is a ‘relief at source’ pension, which deducts the nanny’s contribution after it has been subject to tax and NI. The government then top up the amount taken by 25% and pay that along with the employer contribution into the pot. Sounds good…but it could be a lot better.
NannyPaye has identified this method as having a major drawback and that there is a different approach that can save families and nannies a substantial amount.
The drawback is that any nanny successful enough to be earning in the 40% tax bracket (a growing number we are pleased to see) should be due a 66% top up on their contribution rather than 25% but this can only be claimed via a self-assessment tax return. This results in more admin for a nanny but also more worryingly some nannies may not even be aware and are thus missing out!
In comparison, a ‘salary sacrifice/exchange’ pension deducts the nanny’s pension contribution ‘before’ it has been subject to tax and NI from the gross pay. The entirety of the pension contribution is then processed as an employer contribution, which is totally non-taxable.
As a result, the nanny and employer both save money by not paying National Insurance on the employee portion, a saving that can be quite substantial. There is also no longer a requirement for higher earning employees to complete a tax return to secure their 66% top up as it’s all wrapped up within the payslip.
Here at NannyPaye, we are proud to be the first (and only) nanny payroll bureau to offer both choices to our clients. As a wider organisation, we have decades of experience managing corporate payrolls where this is commonplace, so are delighted to be able to bring this into the professional nannying industry to the benefit of our clients and their amazing hardworking nannies.
Salary Sacrifice pensions are not as straightforward and a full assessment of the nanny’s salary position is required to ensure employers remain compliant.
Additional documentation is necessary for both parties to sign, as well as a document with all the relevant information for the nanny to refer to when making their decision. It is worth noting that opting for a salary sacrifice pension does not affect the employment contract at all, as the documents that we provide for signature cover the arrangement from a legal perspective.
The above information is not intended to be pension advice and salary sacrifice pensions are not the best option for everyone, if you are seeking pension advice you should always speak to a regulated professional directly.
NEST
The pension provider that we use is NEST. When an employee first enrols into NEST they will receive a welcome pack from them in the post. This contains all of the details that they will need for their pension scheme.
If they have been enrolled previously they would just receive an email notifying them of their enrolment into a new scheme. NEST links each employee using their NI number, so when they log in they will be able to see all of the previous pension pots which they have accrued in one place.