Salary Sacrifice Calculator

Salary sacrifice is a contractual variation of the employment terms: the employee gives up part of their gross salary and the employer provides a non-cash benefit of equivalent value. Because the contractual gross is lower, both sides pay less National Insurance on the rest of the package.

The most common arrangements are:

• Pension contributions. The sacrificed amount is paid into the workplace pension by the employer. This is the highest-value use of sacrifice for most employees, because the sacrifice also escapes income tax.
• Cycle-to-work. The employer buys the bike and accessories and the employee sacrifices an equal amount from gross over a hire period, typically 12 or 18 months.
• Electric car schemes. The employer leases an electric vehicle and the employee sacrifices an amount that covers the lease, fuel and maintenance. Electric cars sit in the lowest BIK bands, which makes the combined NI saving substantial.

National Insurance applies to gross pay, not take-home. When the contractual gross falls, NI on both sides falls by the same proportion. For 2026/27 the rates are:

• Employee NI: 8% on earnings between £12,570 and £50,270 a year, 2% above.
• Employer NI: 15% on earnings above £5,000 a year, with no upper cap.

So a £3,000 sacrifice from a £40,000 salary saves the employee 8% × £3,000 = £240 in NI, and saves the employer 15% × £3,000 = £450. Above the £50,270 threshold the employee saving falls to 2% × £3,000 = £60, while the employer saving stays at £450 — which is why sacrifice is most valuable for higher earners via the pension route, where income tax relief also applies.

The same NI saving applies to every approved arrangement, but the income tax treatment differs. The table below compares the four most common UK schemes.

The pension route is the only one where income tax relief is delivered by the sacrifice itself. For cycle-to-work and EVs, the tax advantage comes from the benefit being non-cash, not from the salary reduction. The take-home pay calculator shows the income tax and employee NI on the reduced gross for any sacrifice.

Salary sacrifice is tightly drawn by HMRC and ACAS. The five most common things to get wrong:

• National Living Wage. Post-sacrifice cash pay must stay at or above £12.71 per hour for workers aged 21 and over from April 2026. The employer must check this for every employee in the scheme, every pay period.
• Statutory payments. Statutory Maternity Pay, Statutory Sick Pay, paternity pay and redundancy pay are calculated on post-sacrifice earnings, so a sacrifice can lower them. Some employers make up the difference in policy.
• Pension tax relief. Salary sacrifice for pension works because the employer pension contribution is not taxable. If the pension scheme is salary sacrifice plus a separate employer contribution, both are tax-efficient.
• Opt-out rules. Employees can opt out of salary sacrifice at any time, but the new arrangement is a fresh contractual change, not a refund.
• Documentation. The change must be in writing before it takes effect — usually a salary sacrifice agreement or an amendment to the employment contract. HMRC can disallow the NI saving if there is no paper trail.

Enter the annual salary and annual sacrifice amount in pounds, then choose the scheme type and employee tax band. The calculator returns the reduced gross salary, employee NI saving, employer NI saving, pension income-tax saving where applicable, employee total saving, net employee cost and combined saving. Use the reduced gross as the new baseline for pension contributions, statutory pay and benefits in kind.

For pension-specific modelling with an employer NI top-up, use the salary sacrifice pension calculator.

Salary sacrifice is most often used for pension contributions, cycle-to-work, electric vehicles and some benefit schemes. The tax result depends on the scheme. Pension sacrifice normally reduces taxable pay and NI-able pay. Electric vehicle schemes can create a benefit-in-kind charge. Cycle-to-work has its own conditions. Always identify the scheme type before assuming the full sacrifice becomes a saving.

A sacrifice that looks attractive can cause problems if it takes pay below National Minimum Wage, affects maternity pay average weekly earnings, reduces mortgage affordability, changes life-cover multiples or pushes taxable pay around a student-loan or pension threshold. Employers should model the before-and-after payslip and keep written employee consent before changing contractual salary.

Some employers keep their employer NI saving; others pass all or part of it into the employee pension. Passing the saving into pension can turn every £1 sacrificed into more than £1 of pension contribution, because the employer adds the NI saving on top. This is one of the strongest reasons to compare pension salary sacrifice with ordinary personal pension contributions.