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INTEL
The Power of Salary Sacrifice Schemes: Everything You Need to Know
The Autumn Budget announcement laid the groundwork for some significant shifts beginning this April. With significant increases in both the National Living Wage and employer National Insurance contributions, business leaders across the UK are urgently reviewing how they best manage rising people costs. For many, blanket pay rises and growing headcounts simply won’t be feasible – so employers are needing to think more strategically and creatively about how they attract, reward and retain their people, whilst keeping their approach cost-effective to sustain in 2025 and beyond.
As a result, a key trend is now emerging from the market. Salary sacrifice schemes are rising in popularity as an effective tool for not only supporting employees, but offer a smart way for employers to offset tax increases.
So, why are salary sacrifice schemes effective, and what are their benefits to businesses and their people? Let’s dive in.
What are the different types of benefits funding?
Firstly, there are three different types of benefits funding, giving employers and employees the flexibility to choose which works best for them. Businesses are able to offer a combination of options across their whole benefits package which include:
- Employer funded. These benefits are paid for entirely by the employer – employees receive these benefits without any direct cost to them.
- Employee funding (salary sacrifice). This is a specific type of employee funding. Employees voluntarily opt to give up part of their gross salary in exchange for a specific benefit. This is technically employee funded, but comes with tax advantages making them more cost effective for employees.
- Employee funded (net deductible). This typically refers to an amount deducted from an employee’s net pay (after tax and other deductions) in exchange for a specific benefit. It’s a form of employee funding, but it occurs after taxes have been calculated.
What are salary sacrifice schemes?
Salary sacrifice schemes are provided workplace benefits, which require employees giving a portion of their gross salary (before tax) voluntarily in exchange for a non-cash benefit of equivalent value. Because the deduction is taken from their gross salary, employees can stretch their pay further whilst the business saves on its National Insurance (NI) contributions, making it a tax-efficient way to provide competitive workplace benefits.
Common examples of salary sacrifice schemes include:
- Cycle to Work
- Electric Vehicle (EV) leasing
- Pension contributions
- Tech purchase schemes
Why are salary sacrifice schemes on the rise?
The new financial year brings with it hikes in employer National Insurance rates and wage pressures, making salary sacrifice schemes no longer just a ‘nice to have’ perk, but an essential tool in creating a competitive yet cost-effective benefits offer.
From April 2025 onwards, the cost of employing people is rising. For businesses, salary sacrifice schemes provide in-demand employee benefits without increasing salary costs and driving up tax liabilities. Simultaneously, employees are able to benefit from a lower taxable income which not only boosts their take-home pay but also enables wider access purchase options to high-value items and services.
By providing salary sacrifice benefits, employers can:
- Offset increased NI costs
- Offer attractive benefits with minimal additional costs
- Meaningfully support employees’ financial wellbeing
- Improve workforce engagement and retention through non-cash perks
Example salary sacrifice savings.
Let’s look at potential savings in action.
Example 1: Cycle to Work
Imagine a mid-sized company with 500 employees. If just 10% of the workforce (50 employees) opt into a Cycle to Work scheme with an average annual salary sacrifice of £1,200 each, here’s what the savings could look like:
- Salary sacrifice per employee: £1,200
- Employer NI saving at new 15% rate: £180 per employee
- Total NI savings across 50 employees: £9,000 annually
Example 2: Electric Vehicle Scheme
Now let’s turn to a higher-value benefit, such as electric vehicle purchases. If 5% of employees (25 people) opt into an EV scheme with an average annual salary sacrifice of £7,000:
- Salary sacrifice per employee: £7,000
- Employer NI saving at new 15% rate: £1,050 per employee
- Total NI savings across 25 employees: £26,250 annually
Between the two schemes alone, employers of this size could net over £35,000 per year in employer NI savings. This not only enhances the business’ benefits offer in stretching pay further, but drives tangible savings in offsetting tax costs. This demonstrates the growing power of salary sacrifice schemes in shaping the employee benefits landscape in 2025 and beyond.
DISCOVER RIPPL IN REAL-TIME
Interested in exploring salary sacrifice benefits within your business?
At Rippl, we’re all about enabling meaningful engagement for people and measurable impact for businesses. Our award-winning benefits catalogue offers a diverse and tailored breadth of perks which are fully customisable to your unique workforce needs, and includes a broad selection of salary sacrifice schemes, employee discounts and exclusive savings designed to meaningfully support colleagues’ financial wellbeing. Take a look through our Benefits Catalogue or Employee Discounts, and book a demo to discover how Rippl can transform your rewards and benefits offer for 2025 and beyond.
FAQs on Employee Sacrifice Schemes
Salary sacrifice schemes are a workplace benefits where the employee gives a portion of their gross salary (before tax) in exchange for a non-cash benefit of equivalent value.
Common examples of salary sacrifice schemes include Cycle to Work, Electric Vehicle (EV) leasing, pension contributions and tech purchase schemes.
By providing salary sacrifice benefits, employers can offset increased NI costs, offer attractive benefits with minimal additional costs, meaningfully support employees’ financial wellbeing and therefore improve workforce engagement and retention through non-cash perks.
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