How might accessing childcare vouchers through a salary sacrifice scheme adversely affect my benefit entitlements?

Some benefits might be affected by joining a salary sacrifice scheme. Entitlement to some state benefits is based on the amount of National Insurance Contributions (NIC) you have paid, or are deemed to have paid – these are known as contribution-based benefits.

Contribution-based benefits include Employment and Support Allowance, Incapacity Benefit, Jobseeker’s Allowance (JSA), and State Retirement Pension, including the State Second Pension.

Reducing cash pay through salary sacrifice can reduce the amount of earnings on which you pay NIC to below the Lower Earnings Limit (LEL). This, in effect, could mean that you are no longer paying (or deemed to be paying) NIC. Even if your earnings remain above the LEL, you will be paying less NIC and so may be reducing your entitlement to contribution-based benefits.

For most employees, paying less national insurance contributions (NIC) may not adversely affect your benefit entitlement.

• You may still be paying enough NIC to qualify for benefits anyway.
• Your earnings may be between £95 and £110 a week (between the LEL and the Primary Threshold for tax year 2009/10). In this case you are deemed to be paying NIC and can still build up benefit rights, even though you are not actually paying NIC.
• You may already be earning below the LEL before the salary sacrifice.
• If you only sacrifice salary for a short period, your contribution history will only be affected for that period, so the effect on your benefit entitlement will be minimal.