Salary sacrifice workplace pensions for employers

In this challenging economic climate brought about by the cost of living crisis, people are facing financial challenges and constantly looking for innovative ways to make the most of their money. In light of this, salary sacrifice workplace pensions have emerged as an effective option for both employers and employees. For employees, salary sacrifice offers a tax-efficient way to save towards retirement, helping them to pay less income tax and national insurance. Employer pension contributions made through salary sacrifice pension benefit from compound interest and potential investment growth, helping employees build a larger retirement fund. 

When employees take advantage of salary sacrifice pension, they can achieve long-term financial security and are likely to achieve a more comfortable retirement. This is important to many employees, and by implementing salary sacrifice pension, employers can offer this as an attractive benefit to potential employees. Employers also benefit from reduced national insurance contributions, enjoying savings for their business.

What is salary sacrifice?

Salary sacrifice, sometimes referred to as salary exchange, is an arrangement between an employer and employee. The employee agrees to a reduction in salary or bonus that is equal to their pension contribution. In exchange, the employer will pay the total of the employee’s pension contributions. 

Employers can implement the salary sacrifice pension scheme if they submit their pension contributions on a net (relief at source) or gross (net pay arrangement) basis. 

In a net pay arrangement, an employee’s salary is reduced by the agreed-upon amount before taxes and national insurance are deducted. The employer pays the employees pension contributions directly into their pension scheme. This approach ensures that the employee receives tax relief at the basic rate on their pension contributions, while higher and additional rate taxpayers can claim further relief through their self assessment tax return. 

In a relief at source arrangement, an employee’s salary is sacrificed after taxes and national insurance contributions have been made. The employees pension contributions are made from their gross salary so there is no need for tax relief to be claimed separately. This arrangement is beneficial for higher and additional rate taxpayers, as they receive immediate tax relief on their pension contributions. 

Employers are not required to inform HMRC when switching their pension scheme to salary sacrifice. This means that employers can switch their pension scheme without the need to provide a formal notification. However, is it sensible for employers to keep clear records and documentation of the arrangement for their own reference and compliance purposes.  

What are the benefits of salary sacrifice for employers?

Employers can reap several benefits from implementing a salary sacrifice workplace pension scheme for pension people:

Commitment to employee wellbeing

Adopting the scheme shows a commitment to employee wellbeing and financial security, enhancing employee job satisfaction and engagement. This can lead to a more positive work environment and an improvement in employee productivity.

Attracting top talent

Employers can attract top talent more easily by offering a desirable pension scheme and reduce overall staff turnover rates. Job candidates are likely to view a comprehensive pension scheme as a valuable benefit, showing that the employer cares about the financial wellbeing of its workforce. 

Reducing staff turnover

Employees who are satisfied with their pension scheme and the benefits that it offers are less likely to seek employment elsewhere. A salary sacrifice pension scheme can contribute to higher employee retention rates, reducing recruitment and training costs associated with a high staff turnover. This also promotes stability within an organisation, ensuring consistency and efficiency amongst teams. 

National insurance contributions savings 

Employers save on national insurance contributions by offering a salary sacrifice pension scheme. This is because the contributions made to an employee’s pension fund are usually considered a tax-deductible expense. 

Overall, salary sacrifice can result in a reduction of overall employment costs, whilst supporting employees’ financial wellbeing and helping them to achieve long-term goals. 

What are the benefits of salary sacrifice for employees?

Employees can also benefit from participating in a salary sacrifice workplace pension scheme:

Increase in take-home pay

Employees see an increase in their take-home pay with salary sacrifice pension because they are reducing their taxable income. This additional income can be used to meet immediate financial demands, pay off debts or allocate towards other savings goals. 

Increased retirement savings 

The pension contributions made by employers effectively increase employees retirement savings, helping them to achieve their desired retirement lifestyle. By sacrificing a portion of their salary towards their pension, employees can reap the benefits of compound interest and potential investment growth. 

Tax efficient savings

Employees benefit from a tax-efficient way to save because pension contributions are not subject to income tax or national insurance deductions. Contributions made to an employee’s pension fund are not subject to income tax or national insurance deductions. This means that employees benefit from tax relief on their pension contributions, helping to maximise their retirement savings. 

Long-term financial security

By using a salary sacrifice pension scheme, employees are actively contributing towards their long-term financial security and future. Saving for retirement in a tax-efficient way can provide peace of mind, as employees know that they are taking effective steps to build a solid financial foundation. This also allows employees to focus on their career and productivity at work safe in the knowledge that they are working towards a comfortable retirement. 

Considerations and limitations of salary sacrifice

Despite the many benefits offered to both employers and employees when implementing a salary sacrifice pension scheme, it is wise to consider potential limitations prior to adopting the scheme. 

Assessing financial circumstances

Employees should carefully evaluate their individual financial situation before opting for a salary sacrifice pension arrangement. Reducing take-home pay may impact their ability to cover current living expenses and meet immediate financial obligations. It is essential to ensure that the reduced income will still be sufficient to meet their day-to-day needs.

Impact on other benefits

Salary sacrifice can have implications for benefits that are based on uk salary calculations. For example, it may affect statutory maternity pay calculations or eligibility for certain tax credits that are dependent on income levels. Employees should be aware of any potential consequences in relation to these benefits and consider how they might be affected.

Transparency and communication

Employers should prioritise transparency and open communication with employees before implementing a salary sacrifice pension scheme. It is important to inform employees about the potential impact on their take-home pay, benefits and other financial considerations. Clear communication helps employees make informed decisions and ensures a smooth transition to the new arrangement.

Compliance with legal and regulatory requirements

Employers must ensure that they comply with all relevant legal and regulatory requirements when implementing a salary sacrifice pension scheme. It is essential to understand and adhere to any tax, pension, and employment regulations that may apply. Seeking professional advice from a financial adviser or consulting relevant authorities can help employers navigate the legal and regulatory landscape effectively.

How Mintago helps employers to implement salary sacrifice

Mintago’s financial wellbeing platform can help employers to implement salary sacrifice pension with ease. Introducing the scheme can be a daunting task and come with a lot of work for businesses. Mintago takes care of the onboarding and communications, informing employees about the scheme and helping businesses to reap the rewards without hassle. 

How Mintago can support 

Onboarding and setup

Mintago helps employers achieve a streamlined onboarding process, guiding them through the necessary steps to set up the salary sacrifice pension scheme.

Employee communications

Mintago takes care of all communication between employer and employee, ensuring that employees are well informed about the scheme and what to expect when it is implemented. The platform provides clear and accessible information including salary sacrifice faqs to help employees understand the benefits and limitations of the scheme.

Simplified administration

Mintago simplifies the administrative tasks associated with salary sacrifice pension, with experts on hand to deal with the necessary calculations, deductions and reporting requirements. This reduces the administrative burden on employers and allows businesses to focus on other important tasks. 

Hassle free rewards 

With Mintago, employers can enjoy the rewards of using a salary sacrifice pension scheme without the added complexity and workload. The platform automates processes, making it easier for employees and employers to manage changes in pension contributions. This results in a smoother experience for both employers and employees, reducing potential errors and ensuring accuracy.


Salary sacrifice workplace pensions can be used as a valuable tool for employers and employees, offering a win-win solution for both parties. Employers can enhance employee satisfaction, attract top talent and potentially reduce overall employment costs. As well as this, employees benefit from increased take-home pay, tax efficient savings and improved retirement funds. However, careful consideration of individual circumstances is vital before implementation. By considering salary sacrifice pension, employers can enjoy a more engaged and motivated workforce, leading to the success of both employees and the business.