After the budget announcements in October, a lot of people are worrying about the increase to employers’ national insurance from 13.8% to 15%, along with the decrease in the threshold that you begin paying it from £9,100 to £5,000. Whilst the concurrent increase in the Employment Allowance will help a lot of smaller businesses, many will still see a rise in costs.
One way to mitigate this rise is to use a salary sacrifice pension scheme. This means an employee agrees to give up a portion of their gross salary in return for an employer pension contribution direct to the pension provider.
Key Benefits of Salary Sacrifice Pension Schemes:
1️⃣ Employee NIC savings – employees can already get tax relief on their contributions, but salary sacrifice also allows savings on employees’ NIC
2️⃣ Employer NIC savings – salary sacrifice pension contributions replace an employee’s earnings (which would otherwise be subject to employers’ NIC), with a NIC-free benefit – saving employers 15% (from 6th April 2025) of the amount sacrificed. Often employers split the savings with employees as an incentive.
3️⃣ Tax thresholds – as salary sacrifice reduces an employee’s taxable income, it can enable them to remain below income tax thresholds
Important Points to Consider:
⚠️ National Minimum Wage – salary sacrifice reduces an employees pay, so care must be taken that pay is kept above minimum wage
⚠️ Salary based benefits and mortgages – some benefits are based on salary and can be affected by a reduction in said salary. Similarly, anyone applying for a mortgage will have a reduced salary showing and so may not be able to borrow as much.
⚠️ Contracts – you must ensure that employee contracts allow the implementation of salary sacrifice schemes.
💼Salary sacrifice can also be used for other schemes such as:
- Cycle to Work
- Childcare vouchers
📌 Important: we recommend seeking professional advice before introducing or enhancing a salary sacrifice scheme.