What is Salary Exchange and how are savings made?
Salary exchange is an arrangement where the employee agrees to give up part of their salary for an agreed period in exchange for some kind of non-cash benefit, such as the loan of a bicycle, the lease of a low emissions vehicle or childcare.
As salary exchange is taken from the gross salary rather than net pay it means the employee makes savings by paying less income tax and National Insurance.
Please see below the worked example of an employee with a monthly gross salary of £2,500 who exchanges £243 each month in return for childcare vouchers.
| Without Salary Exchange (benefit deducted from net pay) | With Salary Exchange (benefit deducted from gross salary) | |||
|---|---|---|---|---|
| Basic Monthly Salary | £2,500 | Basic Monthly Salary | £2,500 | |
| Less Income Tax (£392.08) | £2,107.92 | Less Benefit (£243) | £2,257 | |
| Less National Insurance (£222.57) | £1,885.35 | Less Income Tax (£343.58) | £1,913.52 | |
| Less Benefit (£243) | £1,642.35 | Less National Insurance (£195.84) | £1,717.68 | |
| Net Monthly Pay (take home) | £1,642.35 | Net Monthly Pay (take home) | £1,717.68 | |
This employee is making a net monthly saving of £75.33. They are receiving £243 of childcare vouchers each month for an actual cost of £167.67 as a result of tax and national insurance savings from salary exchange arrangements.
Please note: You cannot reduce your gross salary (i.e. your pay before tax and national insurance deductions) below the national minimum wage as a result of all combined salary exchange arrangements. You are advised not to reduce your gross salary below the level for paying National Insurance Contributions (£5,715 per annum). Please use this Salary Exchange Calculator to assess how much of your salary is available for salary exchange.
What benefits are available through Salary Exchange?
The University currently offers the following benefits through salary exchange arrangements:
See the HMRC website for a more detailed explanation of salary exchange.
