What are the benefits of salary sacrifice for employers?

How it works

Simply put, salary sacrifice schemes are employee benefits where employees agree to sacrifice a small part of their monthly salary in return for an item or service.

In doing this, an employee can lower their Income Tax and their National Insurance contributions, effectively making a saving on the item or service. 

For example, with the Bike to Work Scheme, employees can save up to 42% on the cost of a new bike and accessories by utilising this salary sacrifice scheme, whilst also spreading the cost to help make the payment more manageable. 

There are lots of salary sacrifice benefits for employers too. 

Benefits of salary sacrifice for employers

There are lots of benefits of salary sacrifice schemes for employers and employees! Here’s a summary of those benefits. 

National Insurance (NI) savings

When your employees make use of a salary sacrifice scheme, typically you’ll make NI savings.

You get these savings every time employees use a salary sacrifice scheme, which can help you to offset any spending that comes with setting up a platform and running the schemes.

Typically, this saving is the 13.8% (class 1A national insurance contributions) of the value of the amount applied for by the employee through their salary sacrifice scheme. 

For example, a full-time employee working 37.5 hours per week earning £30,000 per year applies for 3 days annual leave through the Holiday Trading salary sacrifice scheme. This would typically cost them £346.05 to apply for, resulting in a £47.75 Class 1A national insurance saving for the employer, on top of the salary saving. This results in a total saving of £393.80 for the employer for this one application. 

For an employer with 500 employees with a 15% scheme take-up using the above example, the total savings from the scheme would be £29,535. 

There’s flexibility with this salary sacrifice scheme too. Employers can choose how many days employees are allowed to apply for and whether or not they can sell annual leave back to the business too. 

Employers have control over how the scheme windows are set up, meaning these savings can be made every year as employees use the scheme. 

Easy set-up

Salary sacrifice benefits for employers extend to being easy to set up and run. 

The right provider can provide you with support and tools to run salary sacrifice schemes successfully.

A provider can help to put all of your salary sacrifice schemes into one place, making them easier to manage and administrate.

Hosting your salary sacrifice schemes through an employee benefits platform, integrated with your HR and payroll software, helps reduce admin significantly, removing the need to manually download and upload data for things such as payroll. 

As every company is different, different solutions will be needed for each. Looking for the right provider for your company can help make sure that you’re getting the right solutions for your employees.

For example, our Salary Extras platform is flexible to suit the needs of businesses of all shapes, sizes and industries, giving employers more options for how they want to run and promote their salary sacrifice schemes.

Improved employee health and wellbeing

Supporting the health and wellbeing of your employees can be complex, but salary sacrifice schemes can help.

The Holiday Trading scheme we’ve mentioned is a great example, allowing employees to buy extra annual leave and have greater control over their work/life balance. 

You will be aware of the term ‘burnout’. Burnout can cost your company as employees will likely need extended time to recover and may even leave the company if they’re struggling.

Allowing staff to buy a specified amount of extra annual leave means they have more time to spend on their personal life. They can take more time to spend with loved ones, go on longer holidays away or deal with personal problems.

Introducing this particular scheme is a great way for you to allow employees to take more personal time and improve their health and wellbeing.

Improved employee financial wellbeing and support with the cost of living

Another aspect of looking after your employees will be centred around financial wellbeing.

You will have employees from all kinds of demographics and who will have different financial priorities. For example, an employee that is in their 20s may be looking into buying their first home. Whilst an employee in their late 50s is probably looking at how they can securely retire.

The financial benefits of salary sacrifice schemes include providing alternative ways to save on things like a new bike or car maintenance to help reduce their monthly outgoings to support with the increasing cost of living.

This paired with resources like a financial wellbeing library, full of information and knowledge on how to help improve financial wellbeing, can make a real difference.

Money stresses can significantly affect a person’s mental wellbeing, which in turn affects a number of other areas including their productivity.

Giving your employees access to salary sacrifice schemes, alongside other financial wellbeing schemes, can help to show new employees that you care about their financial wellbeing

Current employees knowing that you care about their health and wellbeing, including financial wellbeing, will likely improve your overall employee satisfaction and employee retention levels.

Range of options

One of the key benefits of salary sacrifice schemes is the range of options available.

Each employee will have different needs and having a range of salary sacrifice schemes can help support their individual needs.

Salary sacrifice schemes can help support them financially, physically and emotionally, all whilst keeping the business running smoothly.

For example, the MotorSave scheme can help employees save up to 10% and spread the cost of vehicle maintenance, helping soften the blow of unexpected car repair costs and manage an important expense more carefully. 

Holiday Trading, another popular salary sacrifice scheme, helps employees manage their annual leave, and thus their work/life balance, more effectively by allowing them to buy and even sell annual leave from and to their employer. 

The range of options also means that you can benefit from a great uptake of the schemes because of the amount of employees that can take advantage of them and the many ways in which salary sacrifice schemes can help them.

Improved employee engagement

The benefits of salary sacrifice for employers extend even further beyond improving employee financial and physical wellbeing. 

Through improving employee wellbeing and the relationship between the employer and the employee, employee engagement typically improves.

Happier, healthier employees are typically more engaged, and salary sacrifice schemes go a long way in helping employees bring their best selves to work. 

Improved employee value proposition

By providing a more appropriate and supportive range of employee benefits your business is much more likely to see an improvement in both attracting and retaining a talented workforce. 

Salary sacrifice schemes can also be included in your flexible benefits, meaning employees can adjust their contributions to certain schemes to suit their financial goals, for example through adjustable pension contributions.

Providing salary sacrifice schemes like these overall helps employees get more value from their employment with you, improving their relationship with the business and ultimately helping reduce employee turnover. 

If you want to learn more about how to improve your EVP strategy, read our guide on EVP examples to see how successful companies have brought their EVP to life.’

Make the most of these salary sacrifice benefits for employers 

For more info on salary sacrifice schemes, and the benefits for your employees, get in touch or take a look at our range of salary sacrifice schemes.