If an employee is paying pension contributions through salary sacrifice, the employee gives up part of their salary for an additional employer contribution equal to the amount of salary given up. The post-sacrifice salary becomes their contractual entitlement and therefore, under the CJRS, the grant would only cover 80% of the post-sacrifice salary. The grant must be paid in full as furlough pay and cannot be reduced by the salary sacrifice payment.
However, the salary sacrifice agreement is part of the employee’s contract as their inclusion in it took place through a variation in their terms and conditions of employment. Therefore, an employer still has to meet the cost of the additional employer contribution.
Employers where an employee is paying contributions through salary sacrifice are left with two options:
1. the employer continues to pay the employee’s salary sacrifice contributions but cannot reclaim this through the CJRS;
or 2. the employee ceases to participate in salary sacrifice.
In relation to the latter option, employers need to consider their contractual obligations and should take legal advice where necessary.
For further information on this subject, click here to read our Briefing Note on our Coronavirus Resource Centre.