Salary Sacrifice: A Smart Move for Employers — Especially in the Face of Rising NI Costs

From 6 April 2025, many UK employers have seen a noticeable increase in their National Insurance (NI) bills — a change that’s putting fresh pressure on payroll costs just as businesses are navigating a tighter economic landscape.

At Ella Rose Financial, we’re speaking to more business owners looking for proactive ways to manage this challenge — without cutting back on employee benefits.

One practical, often-overlooked solution? Salary sacrifice for workplace pensions.

What Is Salary Sacrifice?

Salary sacrifice is a formal arrangement where an employee agrees to reduce their gross salary in exchange for a non-cash benefit — most commonly pension contributions.

Rather than the employee contributing to their pension from post-tax income, the employer makes the contribution directly before tax and NI are applied. The result?

• Employees pay less National Insurance,

• And employers save on their share of NI too.

In a time when employer NI contributions are increasing, that saving can make a real difference.

Why Employers Are Paying Attention

1. Real Employer NI Savings

With employer National Insurance now at 15%, any reduction in gross salaries can generate significant savings per employee. For example:

• If an employee sacrifices £5,000 of salary for pension contributions,

• The employer saves £750 per year on NI (15% of £5,000).​

Multiply that across a workforce, and the savings become substantial — particularly in sectors with higher headcounts or pension engagement.

2. It Can Be a Cost-Neutral Way to Boost Benefits

Some employers reinvest part or all of their NI savings to:

• Top up staff pension contributions,

• Offer additional wellbeing benefits,

• Or fund workplace initiatives.

This boosts employee value without increasing net costs — an efficient way to enhance your benefits package while keeping your finance director happy.

3. Support Staff Retention and Wellbeing

A well-communicated salary sacrifice scheme shows you’re thinking long-term — not just about your business, but your people. That matters in today’s competitive talent market.

But It’s Not Without Considerations…

Like any financial decision, salary sacrifice needs to be implemented carefully and with the right advice. Here are a few key points:

Legal and Financial Considerations

• It’s a contractual change – Employers must issue updated terms and ensure staff fully understand what’s changing.

• Minimum Wage rules apply – After sacrifice, the employee’s cash earnings must still meet or exceed the National Minimum Wage.

• It may affect other benefits – State entitlements, life cover, and death-in-service benefits may be calculated based on the reduced (post sacrifice) salary.

And What About Mortgage Applications?

Understandably, many employees worry that reducing their gross pay could impact borrowing capacity.

Tom Rimmer of Anderson Harris, an experienced Mortgage Adviser, explains:

“Lenders take different approaches on payslip deductions. Some ignore salary sacrifice arrangements, viewing them as discretionary, and use gross salary for affordability. Others may assess deductions more closely. It’s important not to assume it won’t matter — but with the right help, clients can often find a lender who takes a favourable view.”

In short, salary sacrifice doesn’t automatically prevent someone from getting a mortgage — but it’s worth assessing on a case-by-case basis. A mortgage broker can help navigate this.

How to Make Salary Sacrifice Work for You

If you’re an employer, salary sacrifice can be a smart, future-focused way to ease payroll pressure while strengthening your benefits offering — as long as it's communicated properly and meets compliance requirements.

If you're an employee, it can increase your pension contributions and reduce your NI bill — but you should always consider how it fits within your wider financial picture.

Want to Explore This Further?

At Ella Rose Financial, we work with both employers and individuals to design financial strategies that balance cost-efficiency, tax effectiveness, and long-term wellbeing.

If you're considering salary sacrifice — or just want to understand what it could mean for your business — get in touch. We'll give you the clarity and confidence to make an informed decision.

This blog is for information only and does not constitute personal advice. The impact of salary sacrifice will vary depending on individual circumstances. Professional advice should be sought before making changes to pension or salary arrangements. Tax and legislative rules can change, and the value of any benefit depends on personal circumstances.