Salary sacrifice schemes aren’t just employee perks. They’re powerful cost-saving tools for employers too. But they’re not all made equal. While there are many options out there, only a select few offer meaningful National Insurance savings for both employers and employees. These schemes not only improve financial wellbeing across your workforce, but they also deliver real cost savings to your business.
Theis article details 6 primary salary sacrifice schemes where both you and your employees can save money.
Table of contents
Pension contributions
Pension salary sacrifice is a cost-effective way for employers to enhance their employee benefits package while saving on National Insurance (NI) contributions. By allowing employees to exchange a portion of their gross salary for additional pension contributions, you can offer a tax-efficient solution that boosts retirement savings for your workforce and reduces your business expenses.
Cost savings:
- Employers save 15% on any amount that is sacrificed into pensions — adding up to thousands per year across your workforce. As an example, for a pension contribution of £2,000, the employer saves £300.
- Employees also benefit by saving on both Income Tax and National Insurance through salary sacrifice. A basic rate taxpayer saves 20% Income Tax and 8% NI (total 28%). A higher rate taxpayer saves 40% Income Tax and 2% NI (total 42%), and an additional rate taxpayer saves 45% Income Tax and 2% NI (total 47%).
→ Get a detailed view of how pension salary sacrifice works with Maji
Workplace nursery
The workplace nursery scheme, otherwise known as childcare salary sacrifice, is one of the most generous and underused salary sacrifice schemes available. It allows employees with nursery-aged children to save thousands of pounds per year by paying nursery fees directly through salary sacrifice. The scheme is HMRC-approved, and saves employers and their staff on NI costs every month.
Cost savings:
- Employers save 1.2% on nursery fees paid through the scheme.
- Employees can save an average of £6,500 per year depending on their tax rate and nursery fees — significantly more than the tax-free childcare scheme. All savings are on both income tax and National Insurance.
→ Get a detailed view of how much you could save with a workplace nursery scheme
→ View frequently asked questions relating to the workplace nursery scheme
Electric vehicles
With this scheme, employees can lease an electric car through a salary sacrifice arrangement, thus saving on NI and income tax. Employers also save through this scheme. The lease for employees includes fully comprehensive insurance (which includes business use) as well as servicing, maintenance, no quibble replacement tyres and accident management.
Cost savings:
- Employers save money every time an electric car is leased via salary sacrifice. The average savings are £1000 per car, per year.
- Employees save income tax and National Insurance on any purchases. This means a lower rate tax payer can save 28%, a higher rate tax payer 42% and an additional rate tax payer 47%. Employees also take advantage of low cost insurance alongside manufacturer discounts. Employees do pay Benefit in Kind tax on this, but it’s currently only 3%.
Cycle 2 work
Cycle to Work salary sacrifice gives your employees the opportunity to lease cycling equipment at a lower cost. It not only encourages physical activity and a more environmentally friendly lifestyle, but also helps save money for you and your employees through reduced tax and NI payments.
Employees have the flexibility to either visit a local participating bike shop (there are over 2,600 retailers available!), or browse online, to select any brand of bike or related accessory.
Cost savings:
- Employers save 15% of the cost through reduced NI. So, for £1,000 of equipment, you would get £150.
- Employees save income tax and National Insurance on any of these purchases. This means a lower rate tax payer can save 28%, a higher rate tax payer 42% and an additional rate tax payer 47%.
Bonus salary exchange
Bonus salary sacrifice allows employees to exchange part or all of a cash bonus for an alternative benefit, and is most commonly used to increase pension contributions. This type of scheme is attractive as it improves tax efficiency for both the employer and their employees, enhancing the benefits package and take home pay.
For employees, it’s a great way to maximise the value of a bonus without paying as much in tax and NI. For employers, it reduces NI contributions and shows a commitment to long-term financial wellbeing.
This option is particularly attractive to higher earners and additional-rate taxpayers, as sacrificing a bonus can help reduce their taxable income. In some cases, it can bring income below key thresholds, such as the additional rate band (£125,140) or the point at which the personal allowance starts to taper (£100,000), reducing their marginal tax rate and increasing pension savings.
Cost savings:
- Employers save 15% on any bonuses sacrificed via a salary exchange.
- For employees, lower rate tax payers can save 28% tax, whilst higher rate tax payers can save 42% and additional rate payers can save 47%.
Holiday purchase exchange
Holiday purchase schemes allow employees to buy extra days of annual leave through a salary sacrifice arrangement. This gives your team added flexibility and work-life balance, while generating NI savings for both the business and the individual.
Cost savings:
- Employers save on both the salary cost of the additional holiday days and 15% in National Insurance, making it a cost-efficient way to offer a meaningful benefit.
- Employees save on both Income Tax and National Insurance. 28% applies for basic rate, 42% for higher rate, and 47% for additional rate taxpayers, making extra time off more affordable.
How to get started
Ready to save money while boosting employee satisfaction?
Implementing salary sacrifice schemes is easier than you think. With Maji’s platform, you can automate setup, ensure compliance, and track savings — all in one place.
Contact us to get a bespoke estimation of savings available.
