The Small Business Guide to Salary Sacrifice: How to Save Money & Support Your Team
Introduction
Running a small business often feels like juggling flaming swords while riding a unicycle. Just when you think you’ve got it under control, another financial challenge appears—like the National Insurance (NI) increase coming in April 2025.
If you’re wondering how to handle this without slashing budgets or overworking your team, there’s a smart, legal, and tax-efficient solution: salary sacrifice schemes.
These schemes help reduce employer costs while offering valuable perks to employees. Yes, you can save money and support your team at the same time. Sound too good to be true? Let’s break it down.
What You’ll Learn in This Guide:
✔️ What salary sacrifice actually means (without the jargon).
✔️ The best salary sacrifice schemes for small businesses.
✔️ The pros and cons (because nothing is perfect).
✔️ Three UK-based providers for each scheme.
✔️ How to set up a scheme in your business.
If you’re looking for practical ways to cut costs while keeping your best people, read on.
What Is Salary Sacrifice & How Does It Work?
Salary sacrifice lets employees swap part of their pay for non-cash benefits like pension contributions, electric cars, or tax-free bikes. Since this reduces their taxable salary, both the employer and employee pay less National Insurance and tax.
For small businesses, this is a game-changer. You can offer attractive benefits without increasing salaries. Your employees get more value while you reduce costs.
How Salary Sacrifice Saves Your Business Money
💰 Lower NI Contributions
- Since NI is calculated based on gross salary, a lower salary means lower employer NI costs.
🔄 Reinvest the Savings
- Use the NI savings to:
- Offset the NI increase.
- Offer better employee perks.
- Invest in business growth.
Let’s explore five salary sacrifice schemes that work well for small businesses.
5 Salary Sacrifice Schemes That Can Work for Your Business
Not all schemes offer the same benefits. Here are five tax-efficient salary sacrifice options, plus trusted UK providers to help you get started.
1️⃣ Pension Salary Sacrifice (Most Popular & Tax-Efficient)
🔹 What is it?
Instead of contributing to their pension from take-home pay, employees redirect part of their gross salary into their pension. This reduces taxable income, so both the employer and employee pay less NI.
🔹 Why it works for small businesses:
✔️ Reduces employer NI contributions.
✔️ Helps employees boost retirement savings.
✔️ Simple setup with minimal admin.
📌 Example: A marketing agency with 25 employees saved over £10,000 per year in NI costs and reinvested it in staff wellbeing programmes.
🔹 UK Providers:
2️⃣ Cycle-to-Work Scheme (Great for City-Based Businesses)
🔹 What is it?
Employees get a tax-free bike and accessories, with repayments taken from their gross salary. They save up to 40% on cycling costs while promoting a healthier commute.
🔹 Why it works for small businesses:
✔️ Encourages active and sustainable commuting.
✔️ Reduces employer NI costs.
✔️ No upfront costs—just payroll adjustments.
📌 Example: A London-based tech startup saved £3,500 in employer NI contributions while employees reduced their commuting costs.
🔹 UK Providers:
3️⃣ Electric Vehicle (EV) Salary Sacrifice (Sustainable & Cost-Saving)
🔹 What is it?
Employees lease an electric car through salary deductions, giving them access to affordable EVs with tax and NI savings.
🔹 Why it works for small businesses:
✔️ Helps employees save on vehicle costs.
✔️ Reduces employer NI while supporting green initiatives.
✔️ Enhances your business’s eco-friendly reputation.
📌 Example: A retail business with 50 employees saved £6,000 per year in NI after launching an EV scheme.
🔹 UK Providers:
4️⃣ Workplace Nursery Scheme (For Businesses with Working Parents)
🔹 What is it?
Parents can pay for nursery fees via salary sacrifice, reducing their taxable income and saving on NI and tax.
🔹 Why it works for small businesses:
✔️ Supports working parents, improving retention.
✔️ Saves employees up to 30% on childcare costs.
✔️ Strengthens your employee benefits package.
📌 Example: A recruitment firm introduced this scheme and saw a 10% increase in staff retention among parents.
🔹 UK Providers:
5️⃣ Technology Salary Sacrifice (Affordable Tech for Employees)
🔹 What is it?
Employees can buy laptops, smartphones, or tablets through salary sacrifice, spreading costs tax-efficiently.
🔹 Why it works for small businesses:
✔️ Gives employees access to affordable tech.
✔️ Supports remote working.
✔️ Can be used for business-related devices.
📌 Example: A consulting firm introduced this scheme and saw higher employee satisfaction and productivity.
🔹 UK Providers:
Final Thoughts
With National Insurance costs rising, small businesses need smart ways to manage expenses. Salary sacrifice schemes offer a legal, tax-efficient way to save money while keeping employees happy.
By choosing the right scheme and working with trusted UK providers, you can reduce costs without cutting jobs or benefits.
💡 Need help setting up salary sacrifice? Get expert guidance from Kate Underwood HR. Visit www.kateunderwoodhr.co.uk for tailored support!
