What Employers Need to Know Before Offering a Scheme
Introducing a salary sacrifice scheme can offer significant benefits to both employers and employees, but only if implemented correctly. From compliance obligations to payroll configuration, this guide breaks down what your HR and finance teams need to understand before launching any scheme.
What Is a Salary Sacrifice Scheme?
A salary sacrifice scheme is an arrangement between an employer and employee where the employee agrees to exchange part of their gross salary in return for a non-cash benefit. Popular schemes include pension contributions, electric vehicles, cycle-to-work, and tech or mobile plans.
These schemes are typically attractive because they can reduce National Insurance (NI) contributions, but there are regulatory conditions that must be met.
Key Employer Considerations
1. Understand the HMRC Rules
Not all benefits qualify for tax and NI savings. Since the April 2017 changes to the Optional Remuneration Arrangements (OpRA) rules, many salary sacrifice schemes no longer attract tax advantages unless they are for:
- Pensions
- Ultra-low emission vehicles (75g CO₂/km or less)
- Cycle-to-work
- Childcare vouchers (for those already enrolled)
Tip: Always refer to HMRC’s guidance on salary sacrifice arrangements to check current eligibility and rules.
2. Review Contracts and Documentation
A salary sacrifice agreement represents a contractual change. Employers must:
- Provide a written agreement outlining the change
- Ensure the new salary doesn’t fall below the National Minimum Wage (NMW)
- Allow employees to opt out if their circumstances change (e.g. maternity leave, NMW breach)
3. Payroll and System Adjustments
You’ll need to:
- Update your payroll system to reflect the reduced gross salary
- Ensure correct PAYE, NI, and benefit calculations
- Integrate scheme data with HR systems for accurate tracking
We recommend working closely with SalSac, our software and payroll partner, to configure these changes and ensure end-to-end accuracy.
4. Communicate Transparently
Before launching a scheme:
- Provide clear, jargon-free information to employees
- Outline the pros and cons
- Offer optional one-to-one financial consultations if possible
5. Maintain Audit Trails
HMRC may request evidence of salary sacrifice arrangements, especially for tax-advantaged schemes. Keep:
- Signed agreements
- Communication records
- Payroll and NI calculations
- Implementation Resources
Ready to move forward? Here are some helpful links:
Salary sacrifice for employers – www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye
How to complete P11D and P11D(b) – www.gov.uk/guidance/how-to-complete-forms-p11d-and-p11db
Final Thoughts
Salary sacrifice can be a win-win if it’s set up correctly. By ensuring compliance with HMRC rules and integrating payroll systems properly, your HR and finance teams can confidently offer value-adding schemes that align with employee needs and company goals.
Still unsure? Speak with a payroll advisor or tax consultant before launch.
