How Salary Sacrifice Benefits Work (and Why Employees Love Them)
- Excellect
- Oct 21
- 3 min read
Helping your people save money while improving engagement and retention
When it comes to employee benefits, few options feel like a true win-win for both employers and employees.
Salary sacrifice schemes are exactly that - they save money, support wellbeing, and help your team access benefits that might otherwise be out of reach.
From company cars and bikes to technology, salary sacrifice benefits can make everyday life more affordable for employees, while helping businesses improve retention and boost engagement.
Let’s break down how they work - and why they’re one of the most popular benefit options in the UK.
What Is a Salary Sacrifice Scheme?
A salary sacrifice scheme allows an employee to exchange part of their gross salary (before tax) for a non-cash benefit.
The result? Both the employer and employee pay less in National Insurance Contributions (NICs), while the employee gains access to valuable perks at a reduced cost.
Common salary sacrifice benefits include:
🚗 Car schemes – access to new, low-emission vehicles without the upfront cost.
🚲 Cycle to Work – promoting health and sustainability while saving on bike purchases.
💻 Tech schemes – spreading the cost of laptops, phones, and home technology.
👶 Childcare vouchers – for those enrolled before the government closed the scheme to new applicants.
The key is that the reduction happens before tax and NICs are applied, meaning employees effectively pay less overall.
How It Works (In Practice)
Here’s a simple example:
An employee earning £35,000 a year chooses to sacrifice £1,000 of salary to join a tech scheme.Their taxable income becomes £34,000 - so they pay less income tax and NICs, while gaining access to the benefit they want.
The employer also saves on NICs for that amount, creating a genuine win-win situation.
The Benefits for Employers
1. Attractive, Low-Cost Perks
You can enhance your employee benefits offering without increasing payroll costs - often with minimal administration.
2. Increased Retention and Engagement
Employees appreciate practical, flexible benefits that improve their quality of life.
3. Tax and NI Savings
Both the employer and employee benefit financially, which can be a useful talking point in recruitment and retention.
4. Supports Broader Wellbeing Goals
Schemes like Cycle to Work contribute to physical and mental wellbeing initiatives.
The Benefits for Employees
✅ Save Money
Employees can save up to 40% on certain products or services when purchased via salary sacrifice.
✅ Access Quality Products
Can are often more affordable through workplace schemes than buying independently.
✅ Spread the Cost
Many schemes allow employees to pay monthly, removing large one-off expenses.
✅ Feel Valued
When employees see their employer offering smart, flexible benefits, it builds trust and engagement.
How Salary Sacrifice Fits Into a Benefits Package
Salary sacrifice works best as part of a wider benefits strategy - sitting alongside wellbeing and protection products such as:
Private Medical Insurance (PMI)
Health Cash Plans
Employee Assistance Programmes (EAPs)
Group Protection
Together, they form a modern, balanced benefits offering that supports every area of employee wellbeing - health, finance, and lifestyle.
Things to Keep in Mind
While salary sacrifice is simple in principle, there are a few considerations:
Employees cannot reduce their cash earnings below the National Minimum Wage.
It can affect statutory payments like maternity or paternity pay if salary is reduced.
Schemes should be set up correctly and communicated clearly to employees.
Working with a benefits consultant ensures everything is structured, compliant, and easy to manage.
Final Thoughts
Salary sacrifice schemes are a simple, flexible way to make your benefits package go further. They’re popular with employees, cost-effective for employers, and can be tailored to suit almost any workforce.
If you’d like to explore the salary sacrifice options available to your business - from cycle and car schemes to tech - we’d be happy to help.
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