Salary packaging (also known as salary sacrifice or salary exchange) is a term used to refer to the inclusion of employee benefits (also called fringe benefits) in an employeeremuneration package in exchange for giving up part of monetary salary. Such arrangements are entered into most commonly if there are tax or other benefits to be derived by the employer or employee from the arrangement.
In the United Kingdom, employee benefits commonly included in salary sacrifice arrangements are pension contributions, childcare vouchers, annual leave, etc. If correctly structured, the arrangement can benefit both parties as it saves them both NI contributions as well as save the employee income tax.
Salary sacrifice can be extended to any range of benefits and in 2008 is becoming increasingly popular in the public sector as well as for transport related benefits e.g. Cycles, Bus Travel and Low CO2 emission cars. Salary sacrifice is also commonly used to fund the introduction of Flexible Benefit Plans in the UK.
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