Many companies offer both options within their employee benefits package, but it's sometimes not clear what the difference is. Make sure you're in the know before you commit to anything.
|Salary Sacrifice||Salary Deduction|
|Deducted before tax and National Insurance contribution||Deducted after tax and National Insurance from your net salary|
|Provides access to non-cash benefits which you cannot buy||Provides access to cash benefits you can buy, but perhaps not afford|
|Makes a difference to your total salary||Doesn't make a difference to your total salary|
The idea behind salary sacrifice is quite simple.
You give up part of your salary and, in return, your employer gives you a non-cash benefit, such as childcare vouchers, or increased pension contributions.
Once you sign up to salary sacrifice, your overall pay is lower, so you pay less tax and National Insurance. In addition, your employer will not have to pay their Employers' National Insurance contributions on the portion of your salary you are sacrificing.
Some employers pass on some, or all, of these savings to you.
Things to consider
The benefits are easy to see. Depending on the benefit, the salary sacrifice contribution is taken before tax and National Insurance contributions which saves you, and your employer, money.
The major thing to consider when signing up to a salary sacrifice scheme is that your take-home salary is technically less, this may affect maternity pay or mortgage applications. A lower salary may also mean your pension contributions and any contribution-based benefits are affected.
Before taking out a scheme, make sure you do your research to see how your overall salary will be affected. If you leave your company, your salary sacrifice benefits will automatically stop, so make sure you consider this also.
Salary deduction is taken from your net pay after tax and National Insurance contributions but before you recieve your pay into your account.
Salary deduction can be of real benefit to you if your company offers it as it can provide access to services and savings you may not otherwise have been able to afford. Salary deduction means you never have to worry about missing a bill deadline and helps when it comes to budgeting for the month.
It takes something that may seem unachievable to buy at one time, like an annual travel pass, and makes it more affordable by spreading the payment over time but still giving you the savings of buying it annually.
Things to consider
Salary deduction can be of real benefit to you if your company offer it as it can provide access to services and savings you may not otherwise have been able to afford.
Salary deduction means you never have to worry about missing a bill deadline and helps when it comes to budgeting for the month.
"Salary deduction is easy because you don't have worry about the money being there on the right day, it's just taken from your salary before you even see it." - Alix, Neyber Member
If you leave your company and are still within a salary deduction agreement, most companies will move that payment to direct debit, so it's important that you make sure that this is something you can afford going forward.
Both types of schemes can be of real benefit to you, however benefits can differ from company to company so make sure you do research before committing to anything long-term.