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If pension contributions are paid out of net pay, both employee and employer could make savings of national insurance.
National insurance rates are set to go up again in 2011, so now is a good time to review your position to see whether any national insurance savings could come your way.
If pension contributions are paid out of net pay, tax and national insurance have already been deducted before the pension contribution is deducted. If part of the salary is sacrificed and the employer pays the pension contribution directly, then the gross pay is reduced with the effect that the national insurance is also reduced.
Example:-
Employee has a gross salary of £30,000 and pays 5% (gross) pension contribution. Based on 2009/10 rates of tax and national insurance their net take home pay will be:-
Gross pay |
£30,000.00 |
Less income tax |
£4,705.00 |
Less employees NI |
£2,670.80 |
Less pension (net of basic rate tax) |
£1,200.00 |
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Net pay for year |
£21,424.20 |
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Employer’s NI |
£3,107.84 |
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If the employer pays the gross pension contribution of £1,500 by salary sacrifice, the revised position will be:-
Gross pay (£30,000 less £1,500) |
£28,500.00 |
Less income tax |
£4,405.00 |
Less employees NI |
£2,505.80 |
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Net pay for year |
£21,589.20 |
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Employer’s NI |
£2,915.84 |
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For employee’s, the savings are not huge, but let’s face it - why pay national insurance when you do not need to – surely you would prefer to chose how to spend the extra money yourself.
For employers, if these savings of employer’s national insurance can be made for one employee and you have fifty employees ……. you do the maths!
If you would like any further information, please contact us on 01228 530913 or 01768 864466.
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