Are your employment costs creeping up again?
If you’re running an SME, you’ve probably felt the squeeze building. Wages are rising, employer National Insurance has increased, and day-to-day costs aren’t easing, making it harder to protect your margins without cutting something back.
So, where can you actually reduce costs without reducing value?
Salary sacrifice is one of the few areas where that balance is possible.
What is Salary Sacrifice?
At its simplest, salary sacrifice is a more efficient way to deliver employee benefits.
An employee agrees to exchange part of their salary for a non-cash benefit, such as pension contributions or an electric vehicle. Because their gross salary is reduced, both the employee and employer pay less in National Insurance, and often less tax as well.
It’s not about taking anything away. It’s about structuring what you already offer in a way that works harder for both your business and your employees.
Why more employers are turning to Salary Sacrifice
The reason salary sacrifice is getting more attention now is simple: the cost of employing people has changed.
A series of policy changes introduced between 2023 and 2025 has effectively reset the baseline.
- Employer National Insurance has increased to 15% (up from 13.8%).
- The threshold for paying NI has dropped to £5,000, meaning more of your payroll is now taxed.
- Corporation tax remains at 25% for larger profits.
At the same time, the pressure isn’t just on employers.
- 148.9 million working days were lost to sickness or injury in the UK.
- Around 9 in 10 UK adults report increased cost-of-living pressures.
Put simply, businesses are paying more, while employees are feeling more financial pressure. That combination is why more businesses are rethinking how pay and benefits are structured, looking for ways to support employees without increasing costs.
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Turning benefits into savings
This is where salary sacrifice becomes particularly powerful. Because National Insurance is calculated after the sacrifice is applied, every pound exchanged reduces the amount you pay in employer NI.
At current rates, that means a 15% saving on the value sacrificed. So, if an employee sacrifices £2,000, you save £300. Multiply that across your workforce, and the impact adds up quickly.
The key point is this: nothing is being taken away. You’re simply delivering the same benefits in a smarter, more cost-effective way.
Salary Sacrifice that works in practice
Putting salary sacrifice in place isn’t just about offering a scheme. It needs to be structured properly, aligned with what employees actually value, and supported in a way that drives engagement.
That’s where we come in. We help businesses implement salary sacrifice in a way that delivers both savings and real value, with options such as:
Pension Salary Exchange
One of the most effective options is to allow employees to increase pension contributions in a tax-efficient way through pension salary exchange, while employers benefit from consistent NI savings.
Car Leasing
Car leasing is a salary sacrifice scheme that gives employees access to a fully insured electric car for a fixed monthly cost taken from their gross salary, reducing tax and NI. With no upfront payment and lower overall costs, it’s a simple, cost-effective alternative to leasing, while employers benefit from NI savings and support sustainability goals.
Cycle to Work
Cycle to Work is a government-backed salary sacrifice scheme that lets employees spread the cost of a bike through their gross salary, saving on tax and National Insurance. It reduces commuting costs for employees while creating NI savings for employers, making it a simple, cost-effective benefit to offer.
Technology Benefits
Technology benefits is a salary sacrifice scheme that lets employees spread the cost of laptops and home office equipment through their gross salary, reducing NI contributions.
Alongside this, we provide the communication and support needed to bring these schemes to life, because the more employees understand and engage, the more value your business sees in return.
A more efficient way to deliver value
Most cost-saving strategies come with a compromise, whether that’s cutting back on benefits or limiting what you can offer your team.
Salary sacrifice offers a different approach. It gives you a way to reduce employer costs while strengthening your benefits offering, supporting employees at a time when financial pressure is high, and making better use of what’s already in place.
The real question isn’t whether you can afford to offer more; it’s whether what you already offer is working as efficiently as it could be.
FAQ
Does salary sacrifice reduce employer National Insurance?
Yes. Because salary sacrifice reduces an employee’s gross salary, employer National Insurance contributions are calculated on a lower amount, meaning you save 15% NI on the value sacrificed.
Will employees take home less pay?
Not necessarily. While gross salary is reduced, employees receive a benefit in return, often in a more tax-efficient way, which can improve their overall financial position.
What are the most popular salary sacrifice schemes?
Pension salary exchange, electric vehicle schemes, Cycle to Work, and technology benefits are the most commonly used, offering a strong balance between employee value and employer savings.
Is salary sacrifice complicated to set up?
It can be without the right support. With proper guidance, such as that from our Employee Benefit Consultants and Client Success Managers, it can be implemented smoothly, ensuring compliance and strong employee uptake.
Do all employees have to take part?
No. Salary sacrifice is optional, and employees can choose whether it suits their circumstances.
