Salary Sacrifice Benefits: A Guide for Employers
As an employer, it's important to provide your employees with the best possible benefits and incentives so that they remain loyal, engaged, and motivated. On top of that, in a time of financial hardship, it's vital that you do what you can to ease the financial pressure on workers.
With one in four employees saying that money worries are impacting their ability to do their job and 85% of employees having to cut their expenses, two-thirds of workers agree that benefits need to be part of the solution to help them manage issues caused by the rising cost-of-living, according to our research.
Despite this, our survey highlighted that only 5% of employees feel their organisation is doing enough to support them.
One of the most popular ways to achieve these goals is to offer salary sacrifice benefits, which give employees the opportunity to increase their savings whilst simultaneously reducing their taxable income. In fact, 64% of employees say salary sacrifice benefits help to reduce cost-of-living pressures and 50% of workers would sacrifice more of their basic salary in exchange for a personalised benefits package.
Salary sacrifice schemes can also help to reduce your company's payroll costs and give employee morale a boost. That's why they're a desirable benefit for both employers and employees.
In this guide, you will discover more about salary sacrifice arrangements and the many advantages of adding them to your employee benefits package. We'll also answer the most common questions about salary sacrifice and reveal which salary sacrifice options are most popular with employees.
What is a salary sacrifice benefit?
A salary sacrifice arrangement, also known as a salary exchange, is where an employee agrees to give up part of their pre-tax annual salary in exchange for a non-cash benefit.
How do salary sacrifice benefits work?
Salary sacrifices give your employees the option to give up some of their salary for an item or benefit they want.
As the salary sacrifice deduction is taken from the employee's salary before your finance team transfers their take-home pay (e.g. their pre-tax salary), the employee saves income tax and National Insurance contributions (NICs) on the sacrificed amount.
You can set up salary sacrifice benefit schemes by changing the terms of your employee's contract of employment. Your employee must agree to this change and it must not reduce their cash earnings below the National Minimum Wage (NMW) rate.
Are salary sacrifice benefits costly for employers?
Salary sacrifice arrangements are what is known as a zero-cost employee benefit. This is because, although you pay an initial upfront cost for the benefit, the employee pays you back at the end of the agreement, which neutralises the cost to the employer.
There's more good news. As salary sacrifice benefits reduce employees' National Insurance contributions, companies can even end up making money. That's why they're an attractive option to add to your employee benefits package.
How much salary can employees sacrifice?
The amount of salary employees can sacrifice is largely up to them. However, to ensure that agreeing to the salary sacrifice doesn't get them into financial trouble, the employee contribution must not take their earnings below the national minimum wage.
Regardless of their income or tax bracket, every employee can take advantage of the tax savings a salary sacrifice brings.
Is it easy for employees to opt out of salary sacrifice benefits?
In a word: yes. As salary sacrifices are voluntary, employees must sign an agreement that confirms how much they will pay in return for the benefit. Their employment contract should be updated to reflect the range of benefits they have agreed to.
If they wish to opt out of a salary sacrifice arrangement at any period of time, they can do so. The benefit must be removed from their contract and, if they still owe money, they will be required to make any outstanding payments.
What are the advantages for employers of salary sacrifices?
As well as being cost-neutral, salary sacrifice benefits are free to set up with no additional outgoings for businesses to cover.
Another advantage of salary sacrifice schemes is that, because employees pay less national insurance contributions (NIC) on the salary they sacrifice, employer contributions are also reduced. On average, these types of schemes can generate up to 13.8% of savings per employee.
Additional benefits of salary sacrifice arrangements include:
- ● Attracting top talent: An attractive benefits package can strongly influence 85% of employees when they're looking for a new job
- ● Retaining top talent: Attractive packages, including salary sacrifice benefits, can help to reduce employee turnover
- ● Employee engagement: Valuable benefits, such as salary sacrifices, are an effective way to enhance staff engagement.
What are the benefits for employees of salary sacrifice schemes?
The biggest employee advantage of salary sacrifices is that they help employees save money, whilst enjoying something in return, as the payments are taken from their wages before the tax and national insurance are calculated.
As well as the tax benefits, further advantages of salary sacrifice include:
- ● Future stability: Salary sacrifices for pension funds and green cars can help set employees up for a secure and stable future
- ● Everyday savings: Salary sacrifice arrangements, such as Techscheme, can help to make high-priced items more affordable
- ● Employee wellbeing: Healthy salary sacrifices, such as MyGymDiscounts, promote being active, which can improve mental health.
What are the most popular examples of salary sacrifice benefits?
Almost three-quarters of employees want benefits that meet their individual needs. With balancing finances an ongoing issue for many as the cost-of-living rises, salary sacrifice benefits meet that demand.
So, here are some money-saving salary sacrifice arrangements that could make a real difference to your employees.
Our cycle-to-work scheme, Cyclescheme, can save employees up to 39% on the cost of their choice of a new bike or accessories (such as replacement tyres or frames and road safety equipment) at over 2,000 retailers in the UK.
Cyclescheme is free for you and your employees to join with minimum approval and payroll admin tasks. Plus, your organisation can save up to 13.1% in employer NICs on all spend through the scheme.
Offering a benefit like Cyclescheme can also help to reduce your company's carbon footprint, by encouraging more of your employees to cycle to work and you can also apply to be recognised as a 'Cycle Friendly Employer'.
When we asked employees what benefits they'd like to have access to, a salary sacrifice scheme that helped them spread the cost of the latest tech was in their top three choices.
Introducing Techscheme, which lets employees afford the latest technology by spreading the cost and saving up to 12% on employee NICs.
There are over 5,000 tech items to choose from in-store and online, ranging from mobile phones and laptops to televisions and freezers.
Techscheme is free to join and cost-neutral to implement, plus there's minimal approval and payroll admin and no end-of-hire process.
Our research found that Techscheme made employees feel positive about their employer and less likely to leave the company. What’s more, employees can use this scheme to buy tech for the whole family. So, it's good news all round.
Green Car Benefit
With the price of petrol and diesel rising, it's no surprise that 81% of Britons are open to trying an alternative mode of transport.
Green Car Benefit gives your employees a cost-saving solution for switching to a hybrid or electric vehicle for an affordable monthly amount.
As well as the freedom to choose a low-emission vehicle from the likes of Tesla, Nissan, Audi, Hyundai, and Citroen, the free-to-implement package includes insurance, road tax, MOT, servicing, and more.
Sacrifice car schemes such as this are a great way to support your organisation's green and sustainable goals, plus the entire process is administered by market-leading specialists, Tuskers.
It's been reported that a third of Britons are giving up their gym memberships due to cost-of-living worries in 2023.
The salary sacrifice scheme, MyGymDiscounts, can help combat this forfeit by offering employees up to 25% off a gym membership at a huge range of gyms, health clubs, fitness studios, leisure centres, and BootCamp classes across the UK.
With leading fitness brands such as Fitness First, PureGym, David Lloyd, and Virgin Active in the scheme, there's something for everyone.
This wellness benefit actively supports employee physical and mental health, which can help to boost feel-good hormones, make anxiety more manageable, and lead to your employees taking fewer sick days.
Your entire workforce can access this benefit for one low-cost fee and, once they're signed up, they can self-serve their benefit.
Cashback and discounts
Employees want benefits that help them cut the cost of everyday purchases. Here are three financial wellbeing benefits that can help save money on expenses, including groceries and eating out.
- ● bYond: This prepaid shopping card gives employees up to 15% cash back at more than 70 UK stores. Our research found that 56% of employees felt more valued at work because of their bYond card
- ● Extras Discounts: Save 15% on physical and digital gift cards from over 100 big brands. As there is no admin, approvals, invoicing, or cost to your business, this is an easy and effortless employee benefit
- ● care-4: The UK's leading electronic childcare vouchers scheme helps employees save up to £933 a year on childcare costs. Already have a childcare scheme provider? It's easy to swap to our low-cost, HMRC-approved scheme.
Ready to unlock the benefits of salary sacrifices?
If your company needs to up its game to help support employees at the moment, check out our employee benefits platform, Extras, which provides quick access to a personalised employee salary sacrifice benefits package in one easy-to-use dashboard.