What Is Salary Sacrifice?

Imagine offering your employees a way to get the things they need, save money, and feel valued, without costing your company a penny. Sounds too good to be true? Welcome to the world of salary sacrifice employee benefits schemes.

In today’s challenging economic climate, financial pressure is the top external stressor for employees. 52% have even reported that money worries are having a negative effect on their work performance.

As an employer, you have the power to make a real difference in your team's lives by providing flexible benefits that ease these pressures and boost morale. In fact, research shows that offering a comprehensive range of personalised benefits that empower employees to select the perks that matter most to them leads to increased job satisfaction and higher employee engagement.

Salary sacrifice schemes are the perfect solution: they save money for both your staff and your business while offering benefits that employees truly appreciate, which in turn boosts employee motivation to create a positive company culture.

In this complete employer’s guide to salary sacrifice employee benefits schemes, we’ll answer the following questions:

A salary sacrifice benefit, also known as a salary exchange, is a flexible way for employers to enhance their benefits package without extra cost while giving employees access to desirable perks. It's a legal agreement where an employee chooses to reduce their pre-tax salary in exchange for a non-cash benefit. This arrangement can cover various items, such as a new bike, the latest home and tech gadgets, or even a green car.

It works by asking the company to effectively buy the chosen item up front, and allowing the employee to pay back the cost, interest-free, by spreading their repayments over a long period of time. The payments are deducted directly from the salary during the payroll process, so there is no additional action for the employee to take each month.

Salary sacrifice benefit schemes are incredibly attractive for employers because they cost nothing to implement. The initial cost of the benefit is offset by the reduction in salary, and because employers also therefore save on National Insurance Contributions (NICs), it can even lead to financial savings for the business. Essentially, you’re boosting your employee benefits package without dipping into company funds.

Ultimately, salary sacrifice benefits are a brilliant strategic tool for businesses aiming to offer competitive and appealing employment benefits without bearing additional costs. They enhance employee satisfaction, give staff an improved wellbeing, promote loyalty, and can even contribute to your company’s financial health.

Join BHN Extras for free today or contact us if you have any questions or queries.

Why should you offer salary sacrifice schemes to your employees?

You should offer salary exchanges as part of your employee benefits package because they help participants to purchase potentially big-ticket items they want or need without incurring additional interest as they would with a traditional loan. The reduction in their taxable income also means they’ll ultimately make savings from paying a lower Income Tax bill across the year.

But what are the advantages to you as the employer?

Cost-effective:
Salary sacrifice benefits are free to set up with no additional outgoings. You pay an initial cost for the benefit, but the employee repays you, neutralising the cost. Plus, as these benefits reduce employer National Insurance contributions (NICs), companies can end up saving money. On average, these schemes can generate up to 13.8% in savings per employee.
Attracting top talent:
69% of candidates will favour a workplace with better benefits when deciding to accept a new job. Salary sacrifice options make your company more appealing to top talent.
Employee retention:
Competitive benefit packages help reduce staff turnover and increase employee motivation. Studies show that 91% of employees are more likely to stay with a company that provides financial wellbeing benefits.
Employee staff engagement:
92% of employees consider benefits important to their overall job satisfaction and further studies prove that staff who feel supported in their health and wellbeing are 31% more productive.

Join BHN Extras to build your tailored employee benefits program for free today.

What are the benefits of salary sacrifice for employees?

There are lots of advantages for employees who make use of a salary sacrifice benefit. Not only can they make a significant saving on the cost of the item they are exchanging for, but they can spread the repayment costs over months or even years without gaining interest on the capital.

The savings aspect occurs because the salary sacrifice deduction payments are taken before tax and NICs are calculated. This means that the chosen item can often actually work out cheaper than if they were purchased outright.

As well as the tax benefits, further advantages of the salary sacrifice schemes offered by BHN Extras include:

Home & Tech Scheme: Makes high-priced items, including the latest gadgets and technology, white goods and furnishings, more affordable.
Cyclescheme: Promotes an active lifestyle, reducing stress and improving physical and mental wellbeing. It also reduces their carbon footprint.
Green car benefit: Saves employees money on commuting costs and sets them up for a secure and stable future that's good for them and the environment.
MyGymDiscounts: Gets your staff moving, which helps keep them fit and healthy, improving their overall physical and mental wellbeing.

Join BHN Extras to build your tailored employee benefits program for free today.

What are the most popular examples of salary sacrifice benefits?

With financial pressure mounting as the cost-of-living remains high, salary sacrifice benefits are an effective way of supporting your team.

Here are three money-saving salary sacrifice arrangements offered by BHN Extras that will make a real difference and your employees will love:

Home & Tech Scheme

When we asked employees what benefits they'd like to have access to, a salary sacrifice scheme that helped them spread the cost of the latest tech was in their top three choices. In fact, 57% of employees say that a home and tech salary sacrifice scheme is the most desirable workplace benefit.

BHN Extras’ Home & Tech Scheme is hugely popular because it helps your staff save up to 8% on the latest technology and homeware at IKEA and Currys. There are 1000s of home and tech items to choose from in-store and online, ranging from mobile phones and laptops, fridges and washing machines, to sofas and beds.

Home & Tech scheme is free to join and cost-neutral to implement, plus there's minimal approval and payroll admin, and no end-of-hire process.

Want to know the best bit? Employees can use this scheme to buy tech for the whole family. So, it's good news all round!

Sign up to Home & Tech Scheme now

Cyclescheme

Our Cycle to Work scheme, Cyclescheme, can save your staff up to 42% on the cost of their choice of a new bike or accessories (such as replacement tyres or frames and road safety equipment) at over 2,000 retailers in the UK.

Cycle to Work schemes promote an active workforce and research shows that people who cycle commute are over 50% less stressed during their day.

Cyclescheme is free for you and your employees to join with minimum approval and payroll admin tasks.

Offering a benefit like Cyclescheme can also contribute to your ESG commitments by helping to reduce your company's carbon footprint. To further demonstrate your commitment to sustainability and workplace wellbeing, you can apply to become an accredited 'Cycle Friendly Employer'.

Sign up to Cyclescheme now

Green Car Benefit

Green Car Benefit gives your employees a cost-saving solution for switching to a hybrid or electric vehicle for an affordable monthly amount.

As well as the freedom to choose a low-emission vehicle from the likes of Tesla, Nissan, Audi, Hyundai, and Citroen, the free-to-implement package includes insurance, road tax, MOT, servicing, and more. It’s all administered by market-leading specialists, Tuskers, making the process seamless.

Offering a green car scheme not only supports your organisation's sustainability goals but also shows your commitment to innovative and environmentally friendly solutions. A 2025 study revealed that 43% of employers now rate salary sacrifice car schemes as highly important, citing them as a tax-efficient way to support both wellbeing and sustainability goals.

Sign up to Green Car Benefit now

Gym Discounts

Staying active is more important than ever, but financial pressures have led many to give up their gym memberships.

The salary sacrifice scheme, MyGymDiscounts, can help by offering employees up to 25% off a gym membership at a huge range of gyms, health clubs, fitness studios, leisure centres, and BootCamp classes across the UK.

With leading fitness brands such as Fitness First, PureGym, David Lloyd, and Virgin Active in the scheme, there's something for everyone.

Your entire workforce can access this benefit for one low-cost fee and, once they're signed up, they can self-serve their benefit.

This benefit actively supports employee physical wellbeing and mental health, which can help to boost feel-good hormones, make anxiety more manageable, and decrease sick days.

Sign up to MyGymDiscounts now

Other Benefits to Consider - Cashback and Employee Discounts Schemes

Copious amounts of research makes it clear to see that employees want flexible benefits that help them cut the cost of everyday purchases and achieve real value for money. So, as well as salary sacrifice schemes, here are three other, easy-to-implement and affordable financial wellbeing benefits that can help save money on expenses, including groceries and eating out.

bYond: This prepaid shopping card gives employees up to 15% cash back at more than 85 UK stores. Our research shows that 56% of employees feel more valued at work because of their bYond card.
Extras Discounts: Save 15% on physical and digital gift cards from over 100 big brands. As there is no admin, approvals, invoicing, or cost to your business, this is an easy and effortless employee discounts benefit.
syd™: syd™ is an AI-powered life quality app that uses science-backed data to provide individuals with personalised recommendations that boost physical, mental, financial and social health.

Join BHN Extras for free today or contact us if you have any questions or queries.

How to easily add salary sacrifice schemes to your employee benefits package

Adding salary sacrifice options to your employee benefits package is simpler than you might think. All you need to do is join our employee benefits platform, Extras, for free and you'll get access to a wide range of market-leading salary sacrifice schemes and additional benefits that provide your team with the most support and choice.

Find out more about how Extras works or join BHN Extras for free today.

Frequently Asked Questions About Salary Sacrifice Schemes

What is salary sacrifice in simple terms? +

Salary sacrifice is when an employee gives up part of their gross salary in exchange for a non-cash benefit, such as a new bike, tech item or electric car. The cost of the item is paid for via monthly repayments that are automatically processed during payroll. Salary sacrifice schemes offer participants tax and National Insurance savings.

Is salary sacrifice legal in the UK? +

Yes. Salary sacrifice is HMRC-approved and is widely used by employers across the UK. Any employment benefits that are classed as benefits-in-kind will need to be reported using a P11D form at the end of the tax year.

Are salary sacrifice-led employee benefit packages costly for employers? +

Salary sacrifice arrangements are what is known as a zero-cost employee benefit. This is because, although you pay an initial upfront cost for the item (e.g., bike, car, washing machine), the employee pays you back on a monthly repayment agreement, which neutralises the cost to the business.

There's more good news. As salary sacrifice benefits reduce employee and employer National Insurance contributions, companies can even end up making money. That's why they're an attractive option to add to your employee benefits package.

Can all employees participate in salary sacrifice schemes? +

Most employees can participate in salary sacrifice schemes, but there are exceptions. For instance, employees earning close to the National Minimum/Living Wage cannot reduce their salary below this threshold. Additionally, some benefits may have specific eligibility criteria.

Is there a minimum or maximum salary sacrifice spend for employees? +

The amount of salary employees can sacrifice is largely up to them. All of the BHN Extras salary sacrifice schemes are designed to suit a wide range of budgets and needs. There is no set minimum spend on any scheme, but there are maximum spend limits on some schemes to protect both the employee and the employer.

The main consideration factor is to make sure that the employee is never put at risk of ending up in financial trouble by signing a salary sacrifice agreement. Therefore, the employee contribution must not take their earnings below the National Minimum Wage or National Living Wage.

Is it easy for employees to opt out of salary sacrifice benefits? +

Salary sacrifice scheme participation is voluntary, so an employee can opt out of ever entering a salary sacrifice agreement.

Those who do utilise the benefit must sign an agreement that confirms how much they will pay in return for the benefit. Once signed, this must be repaid even if the employee no longer wants/has the item or if they decide to leave the business. Their employment contract should be updated to reflect the range of benefits they have agreed to and what fixed time period they are bound by for repayments (usually 12, 24 or 36 months).

If an employee wishes to opt out of a salary sacrifice arrangement early, they can do so under certain circumstances. However, they will usually be required to make any outstanding payments before the benefit can be removed from their contract.

How do salary sacrifice schemes affect contributions to workplace pension schemes? +

Salary sacrifice can affect workplace pension contributions since these are typically calculated based on an employee's gross salary after the sacrifice. This means the contributions from both employer and employee could be lower, which may impact an employee's ultimate retirement savings. However, employers can choose to maintain their pension contributions at pre-sacrifice levels to ensure employees' pension pots are not negatively impacted.

Are there any tax implications when using salary sacrifice schemes? +

Yes, there are tax implications - good ones! Salary sacrifice schemes reduce an employee's taxable income, which means they pay less Income Tax and NI.

Employers also pay less National Insurance on the reduced salary. However, it's essential to ensure that the arrangements comply with HMRC regulations to avoid any tax issues.

Is there a minimum contribution from my company on any salary sacrifice schemes? +

No, there is no minimum contribution required from the company for salary sacrifice schemes. These schemes are designed to be cost-neutral for employers, meaning you can offer valuable benefits to your employees without additional financial outlay.

What happens if an employee leaves the company in the middle of a salary sacrifice agreement? +

If an employee leaves the company, the terms of the salary sacrifice agreement will outline how any outstanding payments are handled. Typically, the remaining balance for the benefit must be paid off, either by deducting from the final salary or through an alternative private arrangement.

How often can employees change their salary sacrifice arrangements? +

Employees will usually be free to change or enter into new salary sacrifice agreements during annual enrolment periods or after the completion of an existing agreement.

Changes made in the middle of an agreement are less common but can occur in reaction to a qualifying life event that has or will affect their financial status (e.g., maternity pay or universal credit entitlement). However, the exact terms should be outlined in the salary sacrifice agreement and any changes will need to be updated in the employee’s contract.

What benefits does BHN Extras offer? +

Through the Blackhawk Network Extras employee benefits platform, employees can access tech and home essentials, electric and hybrid cars, bicycles with accessories, and gym memberships on salary sacrifice schemes. There are other benefits that come with the platform such as bYond (prepaid shopping card), Extras Discounts (up to 15% off 100+ gift cards) and access to syd™ (life quality app).

BHN Extras is a free employee benefits platform. Simply sign up, activate the benefits you wish to offer, and onboard your employees with the help of the platform itself.

For businesses that operate an existing childcare voucher scheme, you may also make use of care-4 as a salary sacrifice scheme by moving existing participants over to Extras.

Join BHN Extras for free today or contact us if you have any questions or queries.

Are employee benefits complicated to manage as an employer? +

Blackhawk Network Extras handles supplier management, employee queries and admin support. Payroll integration is simple, and full guidance is provided at every stage with a member of the team on hand to help if needed.

What is salary sacrifice? A cost neutral way to offer benefits to your staff

What is salary sacrifice?