Rise in number of Yorkshire companies involved in pension salary exchange to recruit and retain staff

A growing number of companies in Yorkshire are implementing a beneficial tax planning arrangement amid the cost-of-living crisis.

The Pension Salary Exchange (PSE) can create savings for both businesses and their workers, helping employers to enhance their staff rewards package in order to attract and retain quality people.

With the UK experiencing well-documented labour shortages – job vacancies are just under one million - many firms in the county are reportedly being ‘out-salaried’ by competitors, hampering growth.

Market conditions have prompted local businesses to consider the HMRC-approved way of providing staff with net pay increases whilst making bottom-line savings at the same time.

PSE has been rolled out to more than 40 companies by the Top 10 accountancy firm Azets, which has offices in Bradford, Leeds and York. Richard Whitelock is a Partner and regional Head of Employer Solutions at Azets’ York office.

He said: “The current economic climate and cost of living pressures mean that businesses, in many cases, don’t have spare funds to expand their staff reward package. To help attract and retain staff for companies, we have introduced PSE to 40 businesses, with a further 25 having on-boarding discussions.

“Annual company savings have ranged between £5,000 and £50,000-plus for businesses employing between 10 to 130 employees.”

Richard added: “Employee retention is critical to many companies because it is expensive and time-consuming to replace quality staff – costs in relation to hiring, onboarding, training and mentoring, along with business disruption, soon mount up. Implementing PSE may mean staff may feel more rewarded and inclined to stay put, rather than having their heads turned by competitors.”

A form of salary sacrifice, PSE changes the way staff pension contributions are made. Essentially, the employee stops making personal pension contributions and reduces their salary to match that saving.

At the same time the employer increases its contributions to ensure the employee’s pension fund receives the same as before in total. This produces National Insurance Contributions (NIC) savings for both employer and employee.

“PSE is a win-win for both employers and employees, but many businesses still do not operate it or have not yet heard about it,” Richard said. “It is important to note, however, that no salary exchange can take an employee’s salary below the National Minimum Wage (NMW) level, so those who are paid at or near NMW might not be able to take part.

“Businesses can either retain their annual PSE savings or reinvest them - in full or part - to boost their staff benefits package. The key benefit of PSE is that the cost of enhancing your staff rewards package can be in many cases entirely self-funded, helping the business to demonstrate its investment in its people for no actual extra cost.”

By Mark Adair – Correspondent, Bdaily

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