Both large and smaller businesses alike are using salary sacrifice to realise substantial National Insurance (NIC) savings.

Salary sacrifice is an arrangement whereby employees agree to "swap" pay for non-cash benefits. Both large and smaller businesses alike are using salary sacrifice to realise substantial National Insurance (NIC) savings, which benefit both the employer and employee.

The benefits of salary sacrifice

Reducing salary by salary sacrifice means employers pay less NIC. Employees will also realise NIC savings and, with some benefits, a tax saving as well.

The most significant NIC saving can usually be realised through pensions salary sacrifice. Employee pension contributions are converted into employer contributions, which do not attract NIC with the pension scheme becoming non-contributory (all other aspects of the scheme remain the same).

Employer savings

The approximate savings calculation is relatively straight forward; employee contributions multiplied by 13.8 percent (or 10.1 percent if your scheme is contracted out on a defined benefits basis).

Employees will also benefit from an NIC saving which can improve the perception of your pension scheme, at no extra cost to the business and increase employees’ pension contributions.