What is salary sacrifice?

Salary sacrifice (also called salary exchange) is an arrangement where an employee agrees to give up part of their gross salary in exchange for a non-cash benefit — most commonly a pension contribution. Because the sacrifice reduces gross pay, both the employee and employer pay less National Insurance, and for pension contributions the employee also saves income tax.

How much NI does salary sacrifice save?

In 2026/27, employer NI is 15% on earnings above £5,000/year. An employee sacrifice of £5,000/year saves the employer £750 in NI (5,000 × 15%). The employee saves at their NI rate: 8% for basic rate taxpayers (£400 saving) or 2% for higher rate earners above the Upper Earnings Limit. For pension sacrifice, the employee also saves income tax at their marginal rate.

Can employers pass their NI saving to employees?

Yes — many employers pass all or part of their NI saving to the employee's pension. This is increasingly common and is an excellent way to boost pensions at no net cost to the employer. Some employers match the saving pound-for-pound into the employee's pension.

Does salary sacrifice affect pension contributions?

Salary sacrifice reduces the gross pensionable pay figure, which affects auto-enrolment minimum contributions. Employers must ensure the total contribution (employer + employee) still meets the minimum 8% of qualifying earnings. Always check your pension scheme rules.

What benefits can be used with salary sacrifice?

Common salary sacrifice schemes include: pension contributions (most tax-efficient), cycle to work (up to £1,000 tax/NI free), electric vehicles (significant savings over diesel/petrol), childcare vouchers (legacy scheme — closed to new entrants), and technology schemes. Some benefits have cap limits set by HMRC.

Does salary sacrifice affect statutory pay (SMP, SSP, maternity)?

Yes — salary sacrifice reduces gross pay, which is used to calculate Statutory Maternity Pay (SMP), Statutory Sick Pay (SSP), and other statutory payments. Employers should consider this when structuring schemes. Some schemes exclude salary from sacrifice for these purposes.

Is salary sacrifice better than personal pension contributions?

For most employees, yes. Personal contributions get income tax relief at source (relief at source) or via net pay arrangements — but do not reduce NI. Salary sacrifice saves NI for both parties, making it more tax-efficient. The exception is if the employee is near a benefits cliff (e.g. child benefit, 60% trap at £100k) where reducing gross salary has additional value.

Salary Sacrifice Calculator 2026/27 | NI Savings for Employer & Employee

Salary Sacrifice Calculator 2026/27

Calculate the NI savings for both employer and employee from salary sacrifice. Works for pension, cycle to work, electric vehicles, and other HMRC-approved schemes. Updated with 2026/27 National Insurance rates.

Salary Sacrifice Details

Enter salary and sacrifice amount to calculate savings

Annual Salary*

Annual Sacrifice Amount*

Scheme Type

Employee Tax Band

New gross salary after sacrifice

£35,000.00

£40,000.00 − £5,000.00 sacrifice

Employee Savings

£1,400.00

annual saving

Net cost to employee: £3,600.00 per year (instead of £5,000.00)

Employee NI Saving

£400.00

8% NI rate

Employer NI Saving

£750.00

15% employer NI

Income Tax Saving

£1,000.00

20% tax rate

Total Both Save

£2,150.00

per year combined

Calculation Breakdown

Sacrifice amount£5,000.00

Employee NI saving (8%)− £400.00

Income tax saving (20%)− £1,000.00

Net cost to employee£3,600.00

Employer NI saving£750.00

Many employers pass their NI saving into the employee's pension.

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Salary Sacrifice: How It Works and Why It Saves Tax

Salary sacrifice is one of the most tax-efficient ways to pay for employee benefits. By reducing gross salary before tax and NI are applied, both employer and employee save money — and for pension contributions, the savings are substantial.

How Salary Sacrifice Saves NI

National Insurance is calculated on gross earnings. When an employee sacrifices part of their salary, both parties pay NI on a lower amount:

Employer: saves 15% on the sacrificed amount (above the £5,000 secondary threshold)
Employee: saves 8% (basic rate) or 2% (above Upper Earnings Limit) on the sacrificed amount
Pension sacrifice only: additionally saves income tax at the employee's marginal rate (20%, 40%, or 45%)

Salary Sacrifice vs Personal Contributions

Method	Saves Income Tax?	Saves Employee NI?	Saves Employer NI?
Salary sacrifice (pension)	Yes	Yes	Yes
Personal pension (relief at source)	Yes (via relief)	No	No
Net pay arrangement	Yes (via net pay)	No	No

Popular Salary Sacrifice Schemes

Pension: The most common scheme. Employee reduces gross salary and employer pays that amount as an employer pension contribution. Both save NI; employee also saves income tax.

Cycle to Work: Employer purchases a bike and equipment (up to £1,000 without prior HMRC approval) and the employee repays via salary sacrifice. Both save NI on the sacrifice. After the hire period the employee can purchase the bike at fair market value.

Electric Vehicle (EV) Salary Sacrifice: Employer leases an EV and the employee sacrifices salary to cover the lease cost. Very popular due to the low BIK rate on electric cars (3% in 2026/27). Significant NI savings plus a very low company car tax charge.

Should Employers Pass Their NI Saving to Employees?

Many forward-thinking employers pass their employer NI saving directly into the employee's pension — this costs the employer nothing and boosts employee pensions. Use our workplace pension calculator to model the impact on pension contributions.