How does salary sacrifice work?

1. The principle is simple; the employee agrees to reduce their salary (cash entitlement) in
return for a benefit.


2. HMRC will no longer see the salary that the employee has ‘sacrificed’ and so will only
apply tax and National Insurance to the remaining salary.


3. HMRC will then look to apply the tax rules to the benefit instead. As the benefit is a pension contribution, no tax or National Insurance is due.


4. As part of implementing salary sacrifice, you will need to amend your employee's contract.