Prior to April 2017, both employee and employer were able to make a saving in Class 1 National Insurance Contributions (“NIC”), with the employee also being the recipient of a PAYE tax saving, on benefits that were offered through salary sacrifice. Employers, therefore, sacrificed anything they could. Due to this, HMRC looked to tighten the salary sacrifice rules and in April 2017 brought in an Optional Remuneration Arrangement (OpRA).

OpRA will apply in one of two scenarios: when an employee enters a salary sacrifice arrangement for a taxable benefit in kind (“BIK”) provided by their employer, or if an employee is offered either cash or an alternative benefit in kind.
The following are exempt from OpRA rules, and still attract the full PAYE tax and Class1 NIC savings:

• pension contributions
• employer-provided pensions advice
• workplace nurseries
• childcare vouchers and directly contracted employer-provided childcare that started on or before 4 October 2018
• bicycles and cycling safety equipment (including cycle to work)
• company cars with emissions of 75g/km or less, including electric vehicle leasing options currently available

Any salary sacrifice arrangements that are entered into between an employer and an employee will require a change in the terms of the employee’s contract of employment. An employment law specialist should be consulted when looking to alter an employee’s contract.

If an employee enters a salary sacrifice arrangement, the employer must ensure that any deductions do not take the employee below the National Minimum Wage (“NMW”) rates for the period that the deduction has been taken.

The Payroll Team at Pierce can help with any questions you may have please contact us.