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What are the limitations of salary exchange?
What are the limitations of salary exchange?

Salary exchange isn't for everyone, see here for the list of limitations.

Rachele Carraro avatar
Written by Rachele Carraro
Updated over a week ago

Below are a series of limitations to Salary Exchange. In practice: Mintago works with your employer prior to offering this to you to ensure that you are suitable.

Lower earnings limit

The LEL is the minimum amount you must earn (in gross pay) to be entitled to certain State Benefits and Statutory Payments. For example, your earnings must be above the LEL to qualify for Statutory Sick Pay. As Salary Exchange reduces the earnings which are assessed for National Insurance, it may mean that entitlement to these benefits may be lost. The LEL for 2022/23 is £123 per week or £6,396 per annum.

National Minimum Wage (NMW) or National Living Wage (NLW)

The government enforces a National Minimum Wage by setting minimum hourly pay rates for UK employees.

The minimum rates depend upon age and status and they usually change each tax year. Employers must make sure all employees are paid at least the NMW. Therefore, as Salary Exchange operates by reducing earnings, you may not be able to pay pension contributions this way if you earn at or close to the NMW.

Primary Threshold (PT)

If you earn more than the Primary Threshold you will pay National Insurance and will therefore be able to get the NI savings by using Salary Exchange.

If you earn less than the threshold (or would after taking into account Salary Exchange) you will not be liable to pay NI and will therefore not get NIC savings (or will not get them on the full amount exchanged) by using Salary Exchange. The PT for 2022/23 is £241.73 per week or £12,570 per annum. This could also affect your entitlement to future state benefits including the state pension.

State Pension Age

Once you reach the state pension age you won’t normally pay any National Insurance contributions. Consequently, if this is the case, you won’t get NI savings by using Salary Exchange (so your decision should rest on other issues).

If you voluntarily continue paying NI after the state pension age, in order to make up a shortfall in your NIC record for State Pension, you can continue to get savings by using Salary Exchange.

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