A salary sacrifice scheme lets employees swap cash salary for non-cash benefits, saving tax and National Insurance. But earnings must not fall below the National Minimum Wage, and life events may impact eligibility. Learn how to navigate these rules.
If an employee wants to join or leave a salary sacrifice arrangement, the employer must update their contract to clearly reflect the changes in cash and non-cash entitlements. Additionally, significant life events—such as marriage, divorce, a partner's redundancy, or pregnancy—may require adjustments to the arrangement, providing employees the option to opt in or out.
Certain benefits are currently exempt from Income Tax or National Insurance contributions and do not need to be reported to HMRC. These include:
- Contributions to pension schemes
- Employer-provided pension advice
- Workplace nurseries
- Childcare vouchers and employer-provided childcare contracted before 4 October 2018
- Bicycles and cycling safety equipment (including cycle to work schemes)
In some cases, for example, when a salary is exchanged for an employer contribution to a pension scheme, the reduction in salary may also reduce the employer's National Insurance contributions liability.
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