Win-Win for employers & employees


Support Financial Wellbeing with Salary Sacrifice

It's well known that emotional and financial wellbeing are connected. Difficult financial situations can lead to feelings of stress, worry, and sleepless nights, and have a negative impact on performance at work. Ultimately, this can result in greater levels of workplace absenteeism, placing extra stress on other staff, and so the cycle goes on.

The rising cost of living and increasing interest rates are putting pressure on household finances, which is a challenge many employers have supported through pay increases and, in some cases, one off payments to help with the bills.

However, increasing pay places extra burden on employers, who themselves face higher energy bills, interest rates, material costs and so on. The reduction to corporation tax announced in the “mini budget” looked like it might help, but that was subsequently reversed, so the option of providing extra support to employees through further pay increases is challenging, if not impossible, for many businesses.

How salary sacrifice could help

Salary sacrifice might, on the face of it, be just that, but when used to fund workplace pension contributions, the overall impact is an increase in net pay for the employee and National Insurance Contributions (NIC) savings for the business, thus creating a “win-win” scenario.

How does it work in practice?

An employee has a gross salary of £50,000, contributes 5% of that to a workplace pension scheme and the employer contributes 3% under auto enrolment rules. The table below shows an example of how a reduction in gross pay can result in increased take home pay.


Before Salary Sacrifice

After Salary Sacrifice




Employee pension contribution



Employer pension contribution



Employee national insurance contribution



Employer national insurance contribution



Total PAYE tax



Net pay




How does the business save money?

In the example above, because gross pay is lower, so are the employer’s NICs, saving the company £327.75 per year for that employee alone. Multiply that by the number of people on the payroll and the savings can be significant.

There are always exceptions to the rule, so it might not be beneficial for all employees in the company and each employee will need to decide if it is right for him/her.

Salary Sacrifice is just one of a number of small changes that can be made to support employees’ financial wellbeing.

At Armstrong Watson we operate a salary sacrifice scheme for staff using our in-house Payroll Team who also administer many similar schemes for our clients.

Are other types of salary sacrifice schemes available?

The most common use of the salary sacrifice scheme is to fund your pension, however, there are a number of other options where salary sacrifice can also be used, for example, childcare vouchers, cycle to work schemes and in more recent times, to lease cars.

Choosing the right schemes for your employees

Not all salary sacrifice schemes suit all businesses or all employees, for example one important consideration if to ensure that employees do not fall below minimum wage as a result of being involved in any scheme.

Taking advice to implement the right scheme/s for your business needs is key, and despite all the benefits, many employers have not taken advantage of these schemes, partly because it’s difficult to explain how a pay cut can be the same as a pay rise.

If you’d like to explore the implementation of salary sacrifice further, our payroll team would be happy to advise and can administer this on your behalf. We can also provide an independent voice to explain how reducing salary can increase take home pay, and how it could be used as part of a financial wellbeing package providing employee benefits, that doesn’t have to cost much, if anything at all.

For more information or advice, get in touch with one of our financial planning team on 0808 144 5575 or email

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