Why salary sacrifice could be the smart move your business needs
With employers now facing higher National Insurance contributions (NICs), adding a salary sacrifice scheme to your employee benefits package could be a smart move — and it may be simpler than you expect.
Why Are Employers Paying More NICs?
As of 2024, employer NICs have increased from 13.8% to 15%. On top of this, the threshold for paying NICs has dropped significantly — from £9,100 to just £5,000. This lower threshold will stay in place until 6 April 2028, after which it will rise annually in line with inflation (CPI).
According to the Office for Budget Responsibility (OBR), these changes are set to increase payroll costs for employers by approximately 2% overall.
Salary Sacrifice: A Valuable Tool for Managing Costs
Salary sacrifice schemes allow employees to exchange part of their salary for non-cash benefits, such as enhanced pension contributions or childcare vouchers. This arrangement reduces both employer and employee National Insurance liabilities, making it a valuable strategy to help manage rising payroll costs.
How Common Are Salary Sacrifice Schemes in the UK?
Despite its benefits, only 48% of UK businesses currently offer salary sacrifice schemes. Business size appears to influence adoption rates significantly:
Just 38% of companies with 20 or fewer employees offer salary sacrifice.
49% of companies with 21–249 employees have implemented schemes.
Among large employers (250+ employees), 67% offer salary sacrifice as part of their benefits.
Implementing Salary Sacrifice
A major concern for employers is the perceived administrative burden. While some paperwork is required, the process is manageable and doesn’t mean rewriting every employee contract.
Salary sacrifice involves changing an employee’s contract to reduce their cash pay in exchange for benefits. This change must be mutually agreed upon, but it can be done simply through a letter of variation rather than drafting entirely new contracts.
This approach avoids a significant HR headache and streamlines implementation.
Is Salary Sacrifice Right for Every Employee?
It’s important to remember salary sacrifice isn’t a one-size-fits-all solution. For example:
Lower earners: Employees with lower salaries might see limited benefit, and a reduced salary could affect their eligibility for certain state benefits.
Opt-out option: Employees can choose to opt out or leave the scheme if their circumstances change.
Pension contributions: If salary sacrifice is used to boost pension contributions, employees need to be aware of the annual pension allowance (£60,000 for 2025/26). Contributions above this threshold may trigger tax charges.
This is where expert advice can make a real difference.
How we can support you
From tailored workplace presentations explaining salary sacrifice to individual employee consultations, our expert financial planners are ready to support your HR team and employees throughout the process — ensuring everyone understands the benefits and potential implications.
Ready to explore how salary sacrifice could benefit your business and workforce? Contact Avidian for expert guidance and support every step of the way.
