Think salary sacrifice is just for pensions? Think again

By Robin Watkins and Adam Bexson

Salary sacrifice (also known as salary exchange) is often viewed through a pensions-only lens. But the opportunity is far wider. For employers under cost pressure (and employees looking to stretch their earnings further or to avoid personal tax cliff-edges) expanding salary sacrifice beyond workplace pensions can deliver immediate and typically repeatable savings.

Structured correctly, salary sacrifice reduces National Insurance (NI) costs for both employers and employees. For employers exploring how salary sacrifice works in practice, the advantages can extend beyond cost saving and employee wellbeing. And reducing salary does not have to impact core benefits such as Life Assurance – so long as the definition of salary (and data) accounts for the pre-sacrificed amount where appropriate.

When implementing salary sacrifice, there are things you need to consider such as National Minimum Wage and how to deal with maternity leave, but with the right advice, the options could be worthwhile.

This article explores how salary sacrifice works and why applying it across pensions and other benefits can deliver meaningful savings for both employers and employees.

The quick win: expand salary sacrifice beyond pensions

NI savings on pension contributions remain unchanged until 2029, making now an ideal moment for employers to introduce or optimise pension salary sacrifice arrangements. But the case for broadening salary sacrifice into non-pension employee benefits is even stronger.

From April 2029, pension contributions above £2,000 via salary sacrifice will attract Class 1 National Insurance contributions, but other non-pension benefits are not affected by the Autumn 2025 Budget reforms. This means they continue to provide a route to driving down NI and tax costs.

Below are some impactful options employers should consider.

Green cars

Electric vehicle (EV) salary sacrifice schemes offer strong financial and environmental advantages, making electric vehicles more affordable through tax-efficient leasing. Because deductions are taken from gross pay, employees save on Income Tax and NI while reducing carbon emissions. And it can positively impact a business’s carbon position.

• Employees exchange gross pay for an EV lease (generally without the need for a large deposit), reducing both Income Tax and NI.
• Typically, a solution will include comprehensive insurance, maintenance, breakdown cover, and road tax among other things.
• Employers gain ongoing NI savings and visible progress against sustainability objectives.
• Quick to launch – can be implemented without a benefits platform.
• Very high demand and strong perceived value among employees.

The upcoming mileage charge for electric vehicles (eVED), which is proposed to be 3p per mile from 2028, is one factor to keep on your radar. Benefit in Kind treatment remains favourable with today’s low rates protected through to 2030. There’s also encouraging news around grants and the cost of charging, which could help offset future changes. Make sure you speak with an expert who can help you understand the wider implications for your organisation and workforce.

Cycle to work

Cycle to work schemes deliver cost savings while supporting physical activity and environmental goals –components of a preventative employee health and wellbeing strategy.

• Employees exchange gross salary for bikes, equipment and safety gear, achieving Income Tax and NI savings.
• Employers save NI and benefit from long-term employee wellbeing and carbon reduction gains.
• Simple, popular and easy to communicate.
• Supports preventative health and employee wellbeing.

Holiday purchase (buying additional leave)

Buying extra annual leave through salary sacrifice is increasingly valued by employees seeking improved work-life balance. It is cost efficient for both employers and employees, and reinforces employee wellbeing, flexibility and retention.

• Employees reduce gross salary in exchange for extra days off, generating tax and NI efficiencies.
• Employers gain NI savings and support productivity and wellbeing.
• Predictable annual enrolment windows drive strong take-up.

Financial advice vouchers

Nearly three-quarters (73%) of employers say the financial wellbeing of their employees is important in their overall HR and wellbeing strategy. (Source: The UK employee benefits landscape report)

Offering regulated financial advice through salary sacrifice is a tax-efficient way to demonstrate your commitment.

• Up to £500 per employee per tax year is exempt from Income Tax and NI.
• Boosts employee financial wellbeing and resilience while delivering employer NI savings.

“Salary sacrifice beyond pensions can provide immediate, repeatable tax and NI savings, while reducing gross salary, allowing people to tax plan based on their own personal circumstances.”

Robin Watkins, Principal Consultant

The pensions window: maximise NI savings before the 2029 changes

Introducing salary sacrifice for pensions now means you can capture several years of uncapped NI savings before the 2029 changes take effect. When combined with non-pension benefits, the financial return becomes even more compelling.

The Autumn 2025 Budget confirmed:

• From 2029, pension salary sacrifice remains fully efficient up to the first £2000 of employee contributions each year.
• Employee and employer NI savings are restricted to the first £2,000 of pension contributions made by salary sacrifice.

For context:

• At £3,000 annual contributions, employee NI increases remain modest (c. £80 for basic rate, £20 for higher rate).
• Employer NI savings at this level are reduced by around £150 per employee.

Salary sacrifice still delivers significant Income Tax efficiency at all contribution levels but after 2029, the NI uplift diminishes. Acting now remains your best financial move.

Learn more

Why act now: compound your savings

Introducing or expanding salary sacrifice across pensions and non-pension benefits enables your organisation to:

Bank NI savings sooner, with compounding value over multiple years.

Smooth operational changes, such as holiday purchase windows, EV demand and cycling seasons.

Improve engagement through planned, right-time communication rather than end-loaded rollouts that risk operational bottlenecks.

Update payroll and compliance processes in a controlled way to minimise disruption.

Plan ROI confidently, aligning measurable NI savings with your organisation’s budget cycles, ESG (Environmental, Social and Governance) goals and people metrics.

Implementing salary sacrifice: compliance, communication, change

Salary sacrifice benefits are straightforward to implement when the right checks and processes are in place. For employers seeking to implement salary sacrifice, here are areas you need to consider:

• Compliance: National Minimum Wage (NMW) checks, Benefit in Kind rules, and contractual variation.
• Payroll and process: Accurate deductions, scheme windows, provider integrations.
• Targeted communications: Segment by eligibility, persona and value case.
• Measurement: NI savings, uptake, wellbeing and ESG outcomes.

Many organisations use an employee benefits consultant for their salary sacrifice implementation or review to ensure compliance, minimise risk and maximise participation.

Recommended action plan: six steps to success

1. Launch salary sacrifice for pensions if not already in place to maximise pre-2029 NI savings.
2. Model NI savings across EV, cycle to work, holiday purchase and financial advice vouchers.
3. Sequence launches for quick wins – typically EV and holiday purchase first.
4. Run right-time communications aligned to payroll cycles and seasonal behaviours (for example, cycling and springtime).
5. Monitor uptake and savings monthly, expanding salary sacrifice opportunity where appropriate.
6. Refresh pension communications to reinforce Income Tax benefits and clearly explain upcoming NI changes.

The bottom line: small changes, bigger savings

Salary sacrifice remains one of the most effective ways for employers to reduce costs while improving employee wellbeing. With pension rules set to change in 2029, employers who act now can capture years of NI savings that future adopters will no longer access.

Expanding salary sacrifice beyond pensions enhances employee wellbeing, retention and sustainability – while driving down employer NI expenditure. In a cost-conscious world, it’s a rare opportunity: a benefit enhancement that also delivers measurable financial savings.