With costs rising, many employers and employees are looking for practical ways to reduce outgoings without cutting benefits. Salary sacrifice can be an excellent tool to do this, but many businesses overlook it.
In short, salary sacrifice lets an employee give up part of their gross salary in exchange for a benefit such as a pension contribution, an electric car or a bike. Because the exchange happens before tax and National Insurance (NI), both sides can save money while staff gain a more attractive package.
A proposed cap on National Insurance relief for pension contributions received heavy publicity after the Autumn Budget 2025 announcement. However, the cap will not come into force until 6 April 2029. Until then, the advantages existing under the current rules remain available.
For employers, salary sacrifice can be an effective way to enhance benefits, improve recruitment and retention, and reduce tax costs. For employees, it can make benefits they value more affordable at a time when cash flow really matters.
