Employee benefits have long played an important role in attracting and retaining talent. However, candidates are now looking for more than just a competitive salary. With many employees facing increasing financial pressure, employers are expected to offer benefits that provide real value and support.
While perks such as gym memberships and birthday leave are still appreciated, many employees are looking for benefits that can help reduce everyday costs. This is where salary sacrifice schemes are transforming employee benefits.
Salary sacrifice schemes can provide employees with access to valuable benefits in a more cost-effective way, while also helping employers build a more attractive and competitive benefits package.
In this article, we will explain what salary sacrifice schemes are, how they work, and where they could benefit your business.
Rising Statutory Costs and the Growing Value of Salary Sacrifice
April 2026 brought significant changes for employers when it comes to employment rights and statutory costs. Alongside stronger employee protections introduced through the Employment Rights Act, the National Living Wage increased to £12.71 per hour, while many businesses are still managing the impact of the National Insurance changes introduced in 2025.
For many employers, this has created additional financial pressure at a time when employees are also looking for greater support from their employer. Businesses are now trying to balance rising employment costs with the need to attract, retain, and support their workforce.
This is one reason why salary sacrifice schemes are becoming increasingly popular. They give employers the opportunity to enhance their benefits offering in a more cost-effective way, while also helping employees reduce everyday costs.
Recent research highlights this growing trend, with the number of businesses offering salary sacrifice schemes reportedly increasing from 7% in early 2025 to 36% by early 2026. This demonstrates that more employers are recognising this as a practical and valuable reward strategy.
What are salary sacrifice schemes?
A salary sacrifice scheme is an arrangement where an employee agrees to give up part of their salary in exchange for a non-cash benefit provided by their employer.
Because the employee’s gross salary is reduced, both the employee and employer can often pay less National Insurance. In some cases, employees may also pay less tax depending on the benefit being offered.
Salary sacrifice schemes have become increasingly popular as employers look for cost-effective ways to improve employee benefits while managing rising employment costs.
There are different types of salary sacrifice schemes available, but two of the most common in the UK are pension salary sacrifice and electric car schemes.
Pension Salary Sacrifice Schemes
A pension salary sacrifice scheme allows employees to exchange part of their salary for increased employer pension contributions.
Instead of the employee paying directly into their pension from their salary, the employer contributes on their behalf. This can reduce National Insurance costs for both parties.
For employees, this can mean:
- Increased pension savings
- Lower National Insurance contributions
- A tax-efficient way to save for retirement
For employers, benefits can include:
- Reduced employer National Insurance costs
- A more attractive employee benefits package
- Supporting long-term financial wellbeing for employees
Many businesses choose to reinvest some of their National Insurance savings back into employee benefits or pension contributions.
Electric Car Scheme UK
An electric car salary sacrifice scheme allows employees to lease an electric vehicle through their employer using deductions from their gross salary.
The employer leases the vehicle and the employee sacrifices part of their salary in return for use of the car. For employees, this can provide a more affordable way to access a new electric vehicle compared to arranging personal finance privately.
For employers, an electric car salary sacrifice scheme UK can help:
- Enhance employee benefits
- Support sustainability goals
- Improve employee attraction and retention
- Potentially reduce National Insurance costs
Before introducing any salary sacrifice arrangement, employers should ensure employees fully understand how it may impact areas such as pensionable pay, statutory payments, and mortgage applications.
At The HR Booth, we offer an electric car salary sacrifice scheme through Fleet Alliance. Several members of our team have already taken advantage of the scheme and have seen the benefits almost immediately.
The scheme gives employees the opportunity to drive a high-quality electric vehicle at a significantly lower cost than arranging finance privately, making it a practical and cost-effective employee benefit.
Tech
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