How Salary Sacrifice Benefits Can Improve Employee Retention

If you want people to stay, help them feel better off right now. That’s the heart of retention. Pay rises help, sure. But there’s an everyday fix your team will feel immediately: salary sacrifice. Cut everyday costs. Keep the admin light. Give people meaningful choices. That’s how you turn nice perks into reasons to stay.

The squeeze on everyday costs is still here. Around six in 10 adults said their cost of living rose in early 2025. And April 2025 brought a big employer NI shift: employer NIC is 15% and the secondary threshold is £5,000. As a result, NI-efficient benefits matter more than ever. 

Extras’ take is simple: when benefits save employees real money on things they actually buy, your package feels more valuable. That’s why, as the UK’s go-to employee benefits provider, Extras focuses on everyday savings with big-name partners, wrapped in one easy platform employees actually use.

What is salary sacrifice and why it keeps people longer

In plain English, salary sacrifice is an agreement to give up part of gross pay for a non-cash benefit. Because it’s taken from gross salary, employees (and employers) can save NI, and sometimes income tax, depending on the benefit. 

Here’s why salary sacrifice helps retention:

• It boosts perceived pay value without headline pay rises

• It reduces money stress, a proven driver of quit risk

• It gives choice, so different people can find their own win

Recent research backs this up. Employees who feel benefits meet their real needs are more likely to stay, according to WTW’s 2024 Global Benefits Attitudes Survey. 

Salary sacrifice: the rules that matter for employers

Here are two data points you should factor into your planning:

• Employer NIC is 15%.

• The secondary threshold is £5,000.

Salary sacrifice has moved from fringe to front row - and it’s climbing. The DWP Employer Survey 2024 found that salary sacrifice for pensions is the most common flexibility (42%) offered by employers. Be sure to look out for:

• National Minimum Wage: don’t let sacrifice push anyone below NMW. Find out more here.

• Statutory pay: sacrifice can reduce statutory pay if average weekly earnings drop under the thresholds. Check HMRC’s guidance here.

• Be clear in your comms: tell people how sacrifice could affect borrowing or maternity pay. Here’s a practical employer guide.

In short, salary sacrifice delivers real savings and fewer surprises.

How salary sacrifice drives retention

When people keep more of what they earn (or spend less on essentials), work feels more rewarding. That emotion of ‘I’m better off here’ is attractive to employees and there’s a direct link between benefits that meet needs and intent to stay. 

The Office for National Statistics shows cost-of-living pressure persists into 2025, so it’s no surprise that cost remains the top driver for employee benefits in the UK. Choice matters too, of course, with a flexible pick-and-mix benefits package most popular across all ages, roles and locations.

The salary sacrifice shortlist employees actually use

Here are four high-impact salary sacrifice benefits that tick the ‘money saving box and help people stay.

Pension salary sacrifice

Why your people care: they keep more of their pay today and grow a bigger pension for tomorrow. Less NI friction. More take-home. Simple as that.

Why you care: in 2025/26, employer NI sits at 15%. That’s a real saving you can recycle into higher employer pension contributions or use to fund wellbeing perks your team will actually use.
Good to know: keep your comms crystal clear. Explain how salary sacrifice can affect statutory pay and borrowing so employees can make informed choices. 

You give people smarter savings. You cut avoidable costs. Everyone wins.

Green Car Benefit (EV salary sacrifice)

Why your people care: EVs get affordable, with one predictable, all-in monthly amount. Benefit-in-Kind (BiK) on EVs is 3% in 2025/26 and steps up gradually, which is still far lower than petrol or diesel.

Why you care: this is a retention magnet with a green halo. The Financial Times reports around 20% of EVs registered last year were via salary sacrifice. Plus, electric cars now make up 41% of car benefit recipients. So, there’s a real demand from employees.

Good to know: be clear on early-termination terms, make charging access easy, and keep T&Cs in plain English.

EVs sit within our Green Car Benefit, which helps you lift loyalty and hit sustainability goals without the faff. Find out more here.

Cyclescheme (Cycle to Work)

Why your people care: they get a better commute and save money on the bike and kit they actually use. Health up. Costs down. Simple as that.

Why you care: it lifts wellbeing and helps cut absence, and for many employers it’s cost-positive once the numbers are in. You help people ride more, feel better, and spend less.

Good to know: Trusted by 50,000+ employers and 1.2m employees, Cyclescheme is part of our benefits pick-and-mix, offering unrivalled choice through 2,600 bike shops, and serious savings up to 47% on bikes.

Home & Tech salary sacrifice

Why your people care: they can spread the cost of must-have home and tech purchases interest-free and save up to 8% via NI. No big upfront hit. Just smarter spending.

Why you care: it’s cost-neutral to run and relevant to almost everyone. Great for take-up and everyday impact.

Good to know: Find out more about how Home & Tech helps you get employees what they need, when they need it here.

Salary sacrifice: by the numbers

Here’s the quick way to build your business case.

1) Employer NI saving
On qualifying salary sacrifice (like pension exchange), you save 15% Class 1 NIC on the sacrificed amount under 2025/26 rules.

2) Avoided turnover cost
When benefits cut real living costs, fewer people leave. Estimate leavers avoided vs replacement cost (recruiting, onboarding, lost productivity). Even a small reduction moves the needle.

3) Programme cost
With Extras, platform costs aren’t the blocker. It’s free to join, with simple admin and built-in reporting, so most cost is change comms and a light payroll tweak.

Salary sacrifice: a setup checklist that keeps you compliant

Pick your mix. Start simple: pension exchange, EV salary sacrifice, Cyclescheme, and Home & Tech. Choose what fits your people best.

Set limits. Define clear spend caps by benefit and role. Keep it fair. Keep it transparent.

NMW checks. Never let sacrifice push anyone below the National Minimum Wage. 

Explain impacts. Be upfront about statutory pay and borrowing implications so employees can decide with confidence. Here’s a helpful guide.

Payroll alignment. Confirm NI treatment against 2025/26 thresholds before you launch:
www.gov.uk/guidance/rates-and-thresholds-for-employers-2025-to-2026

Measure baseline retention, uptake, and savings now, so you can show the impact later.

Want a deeper dive? This guide makes benefits simple.

Salary sacrifice engagement: how to boost uptake

Launch at the right moment

Time it so it lands. Pay review season. New starter onboarding. Cycle to Work Day. Back-to-school tech refresh. EV ride-and-drive events. Make the message meet the moment.

Make it human

Swap jargon for real life. Share ‘What this means for you’ explainers by salary band and life stage. Spell out the monthly difference on a payslip. Show the before and after.

Nudge lightly

Use quick tools and quick wins. A calculator that shows take-home impact. A 60-second manager script. A short video or peer story: “I saved £X a month. Here’s how.”

Close gaps

Look for who’s missing out and fix it. If women are under-represented in benefits, tailor the message, the examples, and the channels. Equity beats blanket comms.

Where Extras helps

You get one login, built-in reporting, ready-to-use comms, and exclusive retail partnerships that deliver real savings without heavy admin.

Salary sacrifice KPIs: how to prove the retention impact

It’s important to track performance, so you can dial up what works.

• Adoption & utilisation: See who’s using what, by benefit, location, and band. High usage = high value.

• NI savings (employer + employee): Capture the pounds saved on both sides. That’s real money back in pockets.

• Engagement & wellbeing scores: Watch the lift in how people feel and perform. Happier teams stick around.

• Retention metrics: Track voluntary turnover by cohort, plus time-to-fill and offer-accept rates. If churn drops and offers convert, you’re winning.

• Total reward value: Show pay + perks after tax/NI so people see how far their money goes. Make it visible. Make it tangible.

Salary sacrifice: the stay factor

If a benefit cuts real costs today, people feel it and they stay. In a higher-NI, still-expensive UK, salary sacrifice is the practical retention lever you can pull now. 

Extras brings the UK’s favourite salary sacrifice options and everyday savings together in one simple, free platform. Real savings. Zero hassle. Benefits that work for everyone.

Explore more here: www.blackhawknetworkextras.co.uk/our-benefits

FAQs: Salary sacrifice 

Does salary sacrifice affect student loan repayments?

Yes. Because sacrifice reduces gross pay, it can lower your student loan deduction in a given period. That can help monthly cash flow, but remember: you’ll likely repay for longer unless your total earnings rise later. Find out more here.

Can directors use salary sacrifice?

PAYE-paid directors can often participate, subject to the same NMW and statutory pay rules and board-approved contract variations. Get tailored advice if dividends and irregular pay are part of the mix.

Can you offer multiple salary sacrifice benefits at once?

Yes. Many employers run pension, EV, Cycle to Work, and Home & Tech together. The key is to sequence approvals and check that combined deductions never push pay below NMW in any period.

Does salary sacrifice affect life assurance multiples (e.g. 4x salary)?

It can. Some schemes define cover on contractual salary (post-sacrifice), others use notional salary. Set (and document) your definition so employees know their cover level.

What about employees on probation or fixed-term contracts?

You can include them, but set eligibility and leaver protections (especially for EVs) in policy. For short contracts, Cyclescheme or Home & Tech may suit better than multi-year commitments.

How do you handle salary sacrifice for part-time or variable hours?

Use conservative caps and pro-rata limits, and run NMW checks each pay period. If hours fluctuate, keep buffers so deductions never breach compliance.

Can remote staff overseas use UK salary sacrifice?

No, not typically. UK PAYE and employer setup are required. For cross-border workers, mirror the intent with local equivalents or gross-up allowances.

Will salary sacrifice affect mortgage affordability?

It can, because lenders look at contractual salary. Good brokers factor in total reward, but play safe: provide employees a ‘notional salary’ letter confirming pre-sacrifice pay.

How fast can you turn on a salary sacrifice benefit?

Quicker than you think. With clear policy, payroll alignment, and templated comms, most employers launch in weeks. Pilot with one benefit, then scale.

What’s the best way to explain salary sacrifice on a payslip?

Show a before/after example with: gross pay → sacrifice line(s) → taxable pay → NI/tax → net. Keep a one-pager in your HRIS so employees can check it anytime.