How Employers Can Cut National Insurance Costs with Smarter Benefits

As economic uncertainty continues to impact hiring decisions, employers are increasingly focused on containing costs while still offering attractive benefit packages. One effective, yet often underused, strategy is to reduce National Insurance (NI) liabilities through the use of salary sacrifice arrangements and increased pension contributions.

These approaches don’t just save money, they can also help retain talent and support employee financial wellbeing.

What is Salary Sacrifice? Salary sacrifice is an arrangement where an employee agrees to exchange part of their gross salary in return for a non-cash benefit such as additional pension contributions, cycle-to-work schemes, tech purchase schemes or electric vehicle leases. As this reduces gross pay, both employer and employee pay less NI.

Why It Matters:

• Employer NI Savings: Reduced gross salary leads to lower employer NI costs (currently 13.8% on earnings above the threshold).

• Employee Savings: Employees also save on NI and sometimes tax, making take-home pay go further.

• Boosting Pension Pots: Channelling savings into pensions through sacrifice increases long-term security for staff.

What Should Employers Watch Out For?

• Minimum wage compliance: Sacrificed salary must not reduce employee pay below the legal minimum.

• Clear communication: Employees should fully understand how their pay and benefits will change.

• Formal agreements: Ensure written consent and updates to employment contracts.

• Payroll and HR systems: Systems should be able to handle salary sacrifice reporting correctly.

  
  

Regularly review the value and uptake of benefit schemes to maximise impact.

Introducing salary sacrifice and increasing employer-supported pensions are smart, compliant ways to reduce NI costs, support staff wellbeing, and differentiate your business in a cautious labour market. When implemented correctly, these schemes are a win-win for employers and employees alike.

Would you like a review of your current payroll or benefits structure to explore these savings? Get in touch for a no-obligation consultation.