In light of the forthcoming increase in employer National Insurance Contributions (NICs) from 13.8% to 15% in April 2025, and the reduction of the contribution threshold from £9,100 to £5,000, employers are seeking effective strategies to manage these rising costs. While salary sacrifice for pension contributions is a well-known method, there are several alternative salary sacrifice schemes that can help offset the impact of increased NICs.

Understanding Salary Sacrifice

Salary sacrifice is an arrangement where an employee agrees to reduce their gross salary in exchange for non-cash benefits of equivalent value. This reduction in gross salary leads to lower income tax and NICs for both the employee and the employer. Beyond pension contributions, various other benefits can be utilized to achieve NIC savings.

Alternative Salary Sacrifice Options

Cycle to Work Scheme

• This initiative allows employees to sacrifice part of their salary in exchange for bicycles and related equipment, promoting healthier lifestyles and sustainable commuting.
• Employee Advantages: Employees receive bicycles and safety equipment, often at a reduced cost, encouraging health and fitness.
• Employer Advantages: Employers benefit from reduced NICs due to the lower gross salary. Additionally, promoting a healthier workforce can lead to reduced absenteeism and increased productivity.
• Implementation Tips: Ensure the scheme is available to all employees and that the equipment is used mainly for qualifying journeys, such as commuting to work.  

‍

Ultra-Low Emission Vehicles (ULEVs)

• Employers can offer ULEVs, such as electric cars, through salary sacrifice schemes.
• Employee Advantages: Employees gain access to environmentally friendly vehicles, often with lower running costs and tax benefits due to lower Benefit-in-Kind (BIK) rates.
• Employer Advantages: Employers reduce their NICs and contribute to environmental sustainability goals.
• Implementation Tips: Stay informed about current BIK rates and ensure the scheme is structured to comply with tax regulations.
  ‍

Additional Annual Leave

• Some employers provide the option for employees to purchase extra annual leave through salary sacrifice.
• Employee Advantages: Employees can enjoy a better work-life balance by having more time off.
• Employer Advantages: Employers save on NICs and may experience increased employee satisfaction and retention.
• Implementation Tips: Clearly define the terms of purchasing additional leave and ensure it aligns with business operational needs.

‍

Workplace Parking

• Employers can offer workplace parking benefits through salary sacrifice arrangements.
• Employee Advantages: Employees benefit from convenient and potentially cost-free parking facilities.
• Employer Advantages: Employers reduce NICs and can utilize existing parking facilities more effectively.
• Implementation Tips: Ensure the provision of parking benefits complies with local regulations and is communicated clearly to employees.

Considerations for Implementation

While salary sacrifice schemes offer financial advantages, employers must consider the following:

• Impact on Employee Benefits: Reducing an employee’s gross salary may affect earnings-related benefits, such as statutory maternity pay, statutory sick pay, and state pension entitlements.
• National Minimum Wage Compliance: Salary sacrifices must not reduce an employee’s earnings below the National Minimum Wage.
• Employee Communication: Clear communication is essential to ensure employees understand the implications of entering into salary sacrifice arrangements.
• Administrative Requirements: Implementing and managing salary sacrifice schemes requires adjustments to payroll systems and thorough record-keeping.

‍

Conclusion

Beyond pension contributions, salary sacrifice schemes encompassing benefits like the Cycle to Work program, ultra-low emission vehicles, additional annual leave, and workplace parking can serve as effective tools for employers to offset rising NICs. By carefully selecting and implementing these schemes, employers can achieve cost savings while enhancing their employee value proposition.

‍