How Salary Sacrifice Benefits Can Help Employers Save
How Salary Sacrifice Benefits Can Help Employers Save
Following the Government’s Budget changes, employers have seen a rise in National Insurance costs, with the employer National Insurance rate increasing to 15% and the earnings threshold at which employers begin paying National Insurance reducing from £9,100 to £5,000. These changes have significantly increased the cost of employing staff for many UK businesses.
At a time when organisations are also facing rising wage pressures, recruitment challenges and increased expectations around employee wellbeing, many employers are asking the same question:
How can we control employment costs without reducing employee benefits?
The one solution that is attracting growing interest is salary sacrifice.
What is salary sacrifice?
Salary sacrifice is an arrangement where an employee agrees to exchange part of their salary for a non-cash benefit.
Because the salary is reduced before tax and National Insurance calculations are made, both the employee and employer can pay less National Insurance. This means employers can achieve savings while still offering valuable benefits that employees genuinely want.
Rather than increasing salaries, businesses can use salary sacrifice schemes to improve their employee offering in a more cost-effective way.
1. Electric Car Schemes
Reduce employment costs while supporting ESG goals
Electric vehicle salary sacrifice schemes have become one of the fastest-growing employee benefits in the UK, with salary sacrifice vehicle leasing growing by 68% year-on-year.
For employers, the benefits extend far beyond providing access to electric vehicles.
Business benefits
- Reduced employer National Insurance contributions
- Supports ESG and sustainability objectives
- Enhances employer brand
- Creates a highly valued employee benefit
- Can support attraction and retention strategies
For employees, the scheme provides access to electric or hybrid vehicles through payroll deductions, often at a lower cost than traditional private leasing arrangements.
In an increasingly competitive labour market, offering a benefit that supports both sustainability and financial wellbeing can help employers stand out.
2. Cycle to Work Schemes
Healthier employees, lower employment costs
Cycle to Work schemes remain one of the simplest and most cost-effective salary sacrifice benefits available.
Employees can spread the cost of bicycles and cycling equipment through payroll deductions, while employers benefit from reduced National Insurance liabilities.
Business benefits
- Reduced employer National Insurance costs
- Supports employee wellbeing strategies
- Encourages sustainable commuting
- Can contribute to reduced sickness absence
- Demonstrates commitment to employee health
While often viewed as a wellbeing initiative, Cycle to Work schemes also make commercial sense for employers looking to introduce meaningful benefits without significantly increasing benefits spend.
3. Workplace Nursery Benefits
Helping parents stay in work
Childcare costs continue to be one of the biggest barriers preventing parents from returning to work or remaining in employment.
This creates challenges for employers, particularly when it comes to retaining experienced talent.
Workplace nursery arrangements are becoming an increasingly popular way to address this issue.
Through salary exchange arrangements, working parents can make significant savings on qualifying childcare costs, while employers benefit from reduced National Insurance costs and improved employee retention.
Business benefits
- Reduced employer National Insurance costs
- Improved retention of working parents
- Supports return to work following parental leave
- Enhances diversity, equity and inclusion initiatives
- Strengthens the overall employee value proposition
For many organisations, retaining experienced employees is significantly more cost-effective than recruiting and training replacements. Workplace nursery benefits can play a valuable role in supporting that objective.
Looking Beyond Cost Savings
While reducing employer National Insurance liabilities is often the initial driver behind salary sacrifice schemes, the wider benefits should not be overlooked.
Many organisations are using these benefits to support:
ESG objectives
Electric vehicle and Cycle to Work schemes encourage more sustainable travel choices and can contribute to environmental commitments.
Employee wellbeing
Benefits that support financial wellbeing, childcare and healthier lifestyles can have a positive impact on employee engagement.
Talent attraction and retention
A strong benefits package can help employers compete for talent without relying solely on salary increases.
A Smarter Approach to Employee Benefits
As employment costs continue to rise, organisations are under pressure to do more with less.
Salary sacrifice schemes offer a practical way to reduce employer National Insurance costs while supporting employees with benefits that make a tangible difference to their everyday lives.
Whether it’s helping employees access electric vehicles, supporting healthier commuting habits or enabling working parents to remain in employment, these schemes can deliver value for both employers and employees.
The question is no longer whether businesses can afford to offer these types of benefits, it’s whether they can afford not to.
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