What is a salary sacrifice?

by | Mar 6, 2025 | Employee Benefits | 0 comments

A salary sacrifice scheme lets employees swap cash salary for non-cash benefits, saving tax and National Insurance. But earnings must not fall below the National Minimum Wage, and life events may impact eligibility. Learn how to navigate these rules.

If an employee wants to join or leave a salary sacrifice arrangement, the employer must update their contract to clearly reflect the changes in cash and non-cash entitlements. Additionally, significant life events—such as marriage, divorce, a partner's redundancy, or pregnancy—may require adjustments to the arrangement, providing employees the option to opt in or out.

Certain benefits are currently exempt from Income Tax or National Insurance contributions and do not need to be reported to HMRC. These include:

  • Contributions to pension schemes
  • Employer-provided pension advice
  • Workplace nurseries
  • Childcare vouchers and employer-provided childcare contracted before 4 October 2018
  • Bicycles and cycling safety equipment (including cycle to work schemes)

In some cases, for example, when a salary is exchanged for an employer contribution to a pension scheme, the reduction in salary may also reduce the employer's National Insurance contributions liability.

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What is a salary sacrifice?

by | Dec 8, 2022 | Employment & Payroll | 0 comments

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to pay, usually in return for a non-cash benefit. The tax and NIC advantages of certain benefits provided as part of a salary sacrifice arrangement were removed from 6 April 2017. The change removed the income tax and employer NIC advantages of certain benefits provided as part of salary sacrifice arrangements such as mobile phones and workplace parking. There was a transitional plan in place for certain benefits that ended on 6 April 2021.

The following benefits are currently not subject to Income Tax or National Insurance contributions and do not have to be reported to HMRC:

  • payments into pension schemes;
  • employer provided pensions advice;
  • workplace nurseries;
  • childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018, and
  • bicycles and cycling safety equipment (including cycle to work).

If an employee wants to opt in or out of a salary sacrifice arrangement, the employer must alter their contract with each change. The employee’s contract must be clear on what their cash and non-cash entitlements are at any given time.

It may also be necessary to change the terms of a salary sacrifice arrangement where a lifestyle change significantly alters an employee’s financial circumstances. This may include marriage, divorce and a partner becoming redundant or pregnant. Salary sacrifice arrangements can allow opting in or out in the event of lifestyle changes like these.

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