Employer National Insurance contributions increased to 15% in April 2025, prompting many businesses to reassess their current pension arrangements. As a result, salary sacrifice schemes are once again gaining traction, offering a cost-efficient way for employers to manage rising expenses while boosting employee benefits.[1]
“We’ve seen a clear increase in SME clients asking about salary sacrifice schemes since the Budget,” says Lisa Ramsey, Chartered Financial Adviser at Brunsdon Financial. “It’s definitely back on the radar for businesses looking to manage rising costs while improving pension outcomes for their teams.”
What Is Salary Sacrifice?
Salary sacrifice is a government-approved arrangement where an employee agrees to give up part of their gross salary in exchange for a non-cash benefit, most commonly additional pension contributions.
By reducing the employee’s gross pay, both employer and employee pay less in National Insurance, leading to potential savings for both sides. [1]
Example: For a typical employee earning £36,000 gross (2025/2026 tax year) [1]:
- Without salary sacrifice: employer’s NI = £4,650
- With 10% salary sacrifice: employer’s NI = £4,110
- Annual saving: £540 per employee [1]
Multiply this across a workforce, and the impact can be substantial.
The above is for illustrative purposes only.
Why SMEs Should Take Notice
While many larger companies already use salary sacrifice as part of their employee benefits offering, many SMEs remain unaware of its dual benefits: as a cost-saving strategy and as a way to enhance pension provision, attract talent, and improve staff retention. [2]
As financial planners, we view salary sacrifice not as a loophole, but as a legitimate, HMRC-approved way to improve efficiency while supporting employee wellbeing.
Important Considerations
Salary sacrifice isn’t suitable for everyone. It may affect entitlements based on gross pay, including:
- Mortgage applications
- Statutory benefits (e.g. maternity pay, sick pay)
- Death in service cover
That’s why it’s essential for employees to fully understand the implications before opting in, and for employers to seek professional advice before implementing any scheme. [3]
Real-world examples like the one above help demystify the topic and show how small adjustments can deliver real, measurable savings.
