What is salary sacrifice?

A simple overview of salary sacrifice for employers

What is salary sacrifice (also known as salary exchange)?

Salary sacrifice is an arrangement between you and your employees: Employees give up part of their future gross salary or bonus in exchange for a non-cash benefit – in this case a pension contribution. 

The employee chooses how much they want to exchange, and this is deducted from their gross salary. You as the employer then pay this amount into the employee’s pension scheme as an employer contribution. 

Making pension contributions in this way also reduces the amount of National Insurance (NI) contributions you and your employees pay - even though the pension contributions remain the same!

Benefits to you, the employer

  • You make savings on NI (you can use this as you please - either keep it for yourself or give it to your employees)
  • Your employees make cost savings too!

Benefits to employees

  • Employees also save on NI which they can then use to either boost their pension contributions or increase their take-home pay