Salary Sacrifice - Positive Images UK

Salary Sacrifice
Group Risk
Employers’ Guide
Because everyone
needs a back-up plan
Unum and salary sacrifice
We understand that the issue of salary sacrifice can be confusing
for employers, especially in relation to Group Income Protection
(GIP), Life and Critical Illness (CI) benefits. This guide aims to
answer frequently asked questions and clarify how salary sacrifice
works in practice.
Once you have put a salary sacrifice scheme in place, it is your
responsibility to request any change to the salary definitions for
the parts of the membership that are affected.
What is salary sacrifice?
Salary sacrifice is when your employee gives up part of their
gross pay in return for non-cash benefits to the same value. Some
examples are childcare vouchers, pension contributions, holiday
entitlement and healthcare options. The sacrifice changes your
employee’s terms and conditions of employment relating to pay.
Group Income Protection (GIP)
•The salary sacrifice must stop in the event of a GIP claim. It
cannot continue AND be replaced through the GIP benefit
•We can cover your employee’s pre-sacrificed salary as long
as the data can be provided on this basis
•Childcare vouchers can continue during benefit payment if
the corresponding value is deducted by you from the level of
your employee’s benefit
For GIP flex options:
•Your employee’s pre-sacrifice salary can be covered where
this is the basic annual salary before flex choices
•Flex can continue during benefit payment if the
corresponding value is deducted by you from the level
of benefit
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Example of salary sacrifice for pension scheme
enhancement
An employer allows his employees to sacrifice up to 25% of
their salaries to enhance their pension contributions, and wants
Unum to insure the pre-sacrifice salaries under their GIP policy.
Their GIP policy has a benefit basis of 60% salary, so a member
who earns £50,000 per year, pre-sacrifice, is insured for £30,000.
If the member sacrifices 25% of their salary to enhance their
pension (£12,500), their work salary becomes £37,500.
Unum will pay the £30,000 benefit based on pre-sacrifice
salary
a) if the £12,500 additional pension contribution stops
b) if the £12,500 is deducted by the employer from the
£30,000 (either as a pension contribution or salary sacrifice)
so that the contribution continues to be paid by the member
c) if the employer and employee both agree on a different
sum, for example, 15% sacrifice (£7,500) and this is
deducted by the employer from the £30,000 benefit
Unum will not pay the £30,000 benefit based on pre-sacrifice
salary if the employer continues to pay the £12,500 extra pension
contribution.
If we are insuring the employer’s pension contributions,
we could insure either pensions contributions including the
enhanced level or pre-sacrifice salary for the member’s benefit but not both. Our normal benefit maximums would apply.
Please note that we will need clarification about what will
happen in the event of a claim. For example, will the sacrifice
agreement stop? If not, will it be deducted from our Income
Protection payment before the member is paid?
Group Risk Employers’ Guide
Example of salary sacrifice for childcare vouchers
Group Life and Group Critical Illness
Based on a member earning £20,000, Unum could offer
the following cover:
•We can insure benefits based on either the pre-sacrificed or
post-sacrificed salary
Pre-sacrifice salary
£20,000
Minus gross childcare vouchers
£2,916
•We can cover your employee’s pre-sacrificed salary as long
as the data can be provided on this basis
Post-sacrifice salary
£17,084
•Salary replaced by other cash replacements, such as
dividends, is not counted as salary sacrifice
a) Using post-sacrifice salary
How does salary sacrifice benefit you?
GIP benefit (60% Post-sacrifice salary of £17,084)
paid by Unum £10,250
Employees value the option of being able to tailor their benefits
package to suit their individual needs, helping you engage staff,
and recruit and retain key skills. You also save National Insurance
on the amount sacrificed.
Plus childcare vouchers paid by employer
£2,916
Total payments during incapacity £13,166
How does salary sacrifice benefit your employees?
b) Using pre-sacrifice salary – vouchers stop
GIP benefit (60% Pre-sacrifice salary of £20,000)
paid by Unum £12,000
Can then re-sacrifice for vouchers
(to gain tax and NI savings)
Points to consider before setting up a salary sacrifice
The employee then has the option to sacrifice part of their
GIP benefit to reinstate their childcare vouchers £2,916
Resulting gross GIP benefit Your employees also receive tax and National Insurance
advantages. For example, an employee who sacrifices salary for
additional pension scheme contributions doesn’t pay National
Insurance Contributions on the sacrificed amount.
£9,084
Total = £12,000 (equal to 60% of pre-sacrifice salary)
Note: the net salary is not relevant to the calculations, as
each person differs depending on their use of tax
benefits.
•It may affect your employee’s entitlement to State benefits,
tax credits, State pension or other benefits such as statutory
maternity pay
• It may affect any pension scheme your employee belongs to
•It should not reduce your employee’s cash pay to below the
national minimum wage
•It is your responsibility to make sure HM Revenue and
Customs are happy the salary sacrifice arrangement is
genuine (find more information on hmrc.gov.uk)
•Legal advice should be sought before introducing a salary
sacrifice scheme
We hope this explains the ins and outs of Salary Sacrifice, but if
you have any questions or would like more information, please
call your Regional Sales Office www.unum.co.uk/contact-us
or email your query specifying Salary Sacrifice to your Sales
Consultant. Alternatively you can visit www.unum.co.uk
Disclaimer: This document should not be considered to be definitive tax advice or in relation to a particular Policyholder or any member
insured under the policy. This includes, but is not limited to, any potential liability to corporation tax and income tax. Policyholders should
take advice from their own professional advisers to ensure that they understand the impact of tax and legislation.
Registered office:
Milton Court
Dorking
Surrey RH4 3LZ
Tel: 01306 887766
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Unum Limited is authorised by the Prudential Regulation Authority and regulated
by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England 983768.
Copyright © Unum Limited 2013
We monitor telephone conversations and e-mail communications from time to time for the purposes of training
and in the interests of continually improving the quality of service we provide.
Fax: 01306 881394
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