Three salary sacrifice benefits that might surprise you

Reducing your pay to save money… sounds like nonsense, doesn’t it? 

But giving up a portion of your salary to pay for certain expenses could lead to significant savings for you and your employer, through a process known as “salary sacrifice”.

What is salary sacrifice?

Salary sacrifice, sometimes known as “salary exchange”, is a UK government-backed scheme designed to help employees save money on tax. It works by allowing you to exchange part of your salary for specific benefits, with the cost deducted directly from your salary before tax and National Insurance (NI) contributions are calculated.

This reduces your taxable salary, lowering your income tax and NI contributions, while also saving your employer money on their NI bill.

How does salary sacrifice work?

Joining a salary sacrifice scheme couldn’t be easier, with just a few simple steps to give you access to big savings:

1. Agreement with your employer

You and your employer agree on a monthly salary deduction in exchange for your chosen benefit. 

2. Payroll adjustment

Each month, your employer will adjust your salary by deducting the agreed amount before tax and NI are calculated.

3. Tax & NI savings

Since your taxable salary is now lower, you pay less income tax and NI. Your employer also pays less NI – making salary sacrifice schemes beneficial to employers and employees. 

4. Enjoy your benefit

It’s time to enjoy your chosen benefit – with significant savings determined by your tax band. 

Three salary sacrifice benefits you might not know about

1. Nursery schemes

Early childcare fees are skyrocketing in the UK, with the average cost of full-time nursery care for children under two costing families approximately £263 per week. That’s over £1000 a month – with some regions, like London, racking up even higher monthly costs. 

A nursery scheme is a tax-effective way to significantly ease the financial burden of these childcare costs by giving you the opportunity to save money on nursery fees through the tax benefits of salary sacrifice. 

Not only is this saving families thousands of pounds each year, but it also benefits employers through savings on their NI contributions at the same time.

Gogeta Nursery is a workplace nursery scheme that lets you save 19-40% on your nursery bill by paying for it out of your gross salary, before you get taxed. There is no cost for companies to offer Gogeta Nursery to their employees however, as part of HMRC compliance, employers must make a financial contribution of £100 per month to the nurseries of participating parents. This is covered by the NI savings your company will make, so Gogeta Nursery remains cost neutral to employers.

2. Electric Vehicle schemes

We’re all trying to do our best to advance Net Zero goals for the planet. That includes rethinking the vehicles we use.

Electric vehicle (EV) schemes make switching to an electric car more affordable by allowing you to lease an EV for less through the tax benefits of salary sacrifice. Similarly to other schemes, this provides savings on income tax and NI – reducing costs significantly compared to personal leasing.

Not only do EV schemes help employees drive electric for less, but they often include insurance, servicing, and breakdown cover, making the switch to sustainable transport hassle-free and cost-effective.

The Electric Car Scheme helps UK employees save 30-60% on electric car leasing through salary sacrifice – just like the Cycle to Work scheme, but for EVs! By spreading the cost through pre-tax salary deductions, employees can enjoy lower monthly payments while employers benefit from a greener, more sustainable workforce.

3. Cycle to work schemes for bike share

The cycle to work scheme is the oldest and most well known option when it comes to salary sacrifice benefits – with traditional cycle to work schemes first stepping onto the scene back in 1999. 

But, did you know the cycle to work salary sacrifice benefit can now be used to lower the cost of shared city bikes too? 

That’s right, now you can pay less for your Lime bike bundles through the tax benefits of salary sacrifice.

CycleSaver is the UK’s first and only exclusive provider of cycle to work benefits for bike share – offering you flexible monthly and annual subscriptions to the UK’s top bike share providers including Lime, Forest, Santander Cycles (Boris bikes), Dott and Beryl.

The cost of your chosen CycleSaver subscription is deducted from your gross salary (before tax) each month, which results in tax savings of 28-47%, depending on your salary band – making your commute more affordable and convenient than ever.

So, is salary sacrifice worth it?

Salary sacrifice schemes are no new feat, but in today’s economic climate, it’s never been more important for your company to offer you workplace benefits that’ll make your hard-earned pounds go further, and cost them nothing in the process. 

Plus, since a well-thought-out benefits offering often leads to happier employees and lower staff turnover, a strong catalogue of salary sacrifice benefits should be a no-brainer for employers.