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What is salary sacrifice? A cost neutral way to offer benefits to your staff

May 27, 2026

Wouldn’t it be great to offer your employees access to the things that they genuinely want and need - whether that’s a new bike, home appliance or greener way to commute - without increasing your benefits budget?

It may sound ambitious, but it’s entirely possible through a salary sacrifice scheme, increasingly referred to as a salary exchange.

Today, financial pressure continues to be one of the biggest challenges facing employees across the UK. In fact, research suggests over half of UK employees report that financial stress impacts their performance at work. Meanwhile, 57% of employees say that money worries are their top source of stress.

For you, the employer, this presents both a challenge and an opportunity.

By offering flexible, tax-efficient benefits to your workforce, you can directly support your employees’ financial wellbeing whilst strengthening engagement, retention and overall job satisfaction. And that’s exactly where a salary sacrifice scheme comes into its own.

In this guide, you’ll discover:

What a salary sacrifice scheme is
Why employers are increasingly adopting these schemes
The key benefits for employees
The most popular salary sacrifice options available today
How to easily introduce a scheme into your benefits offering

What is a salary sacrifice scheme?

A salary sacrifice scheme is an agreement between an employer and an employee to exchange part of the employee’s gross salary for a non-cash benefit.

The terminology is gradually shifting towards ‘salary exchange’ because it more accurately reflects what’s happening - employees are choosing to exchange part of their salary for something of equal value, rather than giving something up.

How does a salary sacrifice scheme work?

A salary sacrifice scheme works by allowing your employee to exchange part of their gross salary for a non-cash benefit, such as a bike, laptop or electric car.

You pay for the benefit upfront and your employee repays the cost through monthly payroll deductions over an agreed period. Because those deductions are taken before Income Tax and National Insurance contributions, employees typically pay less overall than they would if buying the item outright or using traditional finance.

For employers, the benefits are just as appealing. Because gross salary is reduced, Employer National Insurance contributions are reduced too, helping make salary sacrifice schemes cost neutral or even cost positive in some cases.

Why are employers embracing salary exchange?

You know better than anyone that the workplace has changed significantly in recent years. Your employees now expect more than just a salary - they’re looking for support, flexibility and tangible value from you.

A well designed salary sacrifice scheme delivers just that.

A cost neutral way to enhance benefits

One of the biggest advantages of these schemes is that they don’t require any additional budget.

Whilst you initially fund the benefit, the cost is recovered through payroll deductions. At the same time, reduced NIC liabilities can offset administrative costs, or even create savings. This makes a salary exchange particularly attractive, as you continue to balance rising operational costs with the need to stay competitive.

Stronger attraction and retention

Benefits play a major role today in job decisions.

A recent study found that 72% of employers saw improved candidate attraction when offering enhanced benefits packages, leading to the assumption that a significant number of employees value workplace benefits, especially those that help them manage everyday costs.

A salary sacrifice scheme is a practical way to deliver that value and with support from platforms such as BHN Extras, getting started is quick and simple. To find out more, click here.

Improved employee engagement and productivity

Financial stress doesn’t stay at home, it follows employees to work. And that’s bad news for you.

It’s worth considering that employees who feel financially secure are significantly more engaged and productive, thus having a positive impact on your bottom line.

Therefore, by providing your employees with access to affordable products and services through a salary exchange, you can help reduce financial pressure and in turn, support better performance and wellbeing.

What are the benefits of a salary sacrifice scheme for employees?

From an employee perspective the appeal of a salary sacrifice scheme is straightforward - better affordability, greater flexibility and meaningful savings.

Tax and National Insurance savings

Because payments are taken from gross salary, employees pay less Income Tax and NICs overall. This means, in the majority of cases, items purchased through a salary sacrifice scheme cost less than buying them outright or using traditional credit.

Interest-free affordability

Unlike loans or credit cards, salary exchange schemes typically allow employees to spread the cost of purchases without interest.

In a high interest environment where UK borrowing rates remained elevated throughout 2025, this is a significant advantage.

Access to higher value items

Salary exchange makes larger purchases more accessible. Because employees are able to spread the cost of their purchase instead of paying upfront, they’re able to choose higher value items than they may ordinarily be able to afford, including:

Home appliances
Technology
Sustainable transport options, such as bicycles and electric vehicles
Fitness memberships

This flexibility is especially valuable during ongoing cost of living pressures.

Convenience and ease

Because payments are automatically deducted through payroll, there’s no need to manage monthly repayments manually. This simplicity is a key reason why participation rates in salary sacrifice schemes continue to grow.

What are the most popular salary sacrifice schemes?

Not all benefits are created equal. It’s for that reason the most successful schemes are those that align with employee priorities, especially those around saving money, improving wellbeing and supporting sustainability.

Here are some of the most popular salary exchange schemes.

Cycle to work schemes

Cycle to work remains one of the most established and widely used salary exchanges in the UK.

Supported by The Department for Transport guidance, these schemes allow employees to save on bikes and cycling equipment and accessories whilst promoting healthier commuting (and lifestyle) habits.

Employees can typically save between 20% and 40% on a cycle to work scheme, depending on their tax brand.

Beyond the financial savings, other benefits include:

Improved physical health
Reduced stress levels
Lower carbon emissions

Electric and low-emission car schemes

Sustainability continues to shape employee benefits. And salary exchange car schemes, particularly for EVs (electric vehicles), have grown rapidly. So much so, salary sacrifice is now one of the fastest growing routes for employees to access electric vehicles.

These schemes also bundle the cost of insurance, maintenance and road tax, meaning employees only have one predictable monthly payment to worry about.

Finally, thanks to low benefit-in-kind (BiK) rates set for fully electric cars under HM Treasury policy, they remain highly tax efficient.

Home and tech schemes

Access to affordable technology and home essentials remains one of the most requested benefits. Research found that over half of employees rank tech and home support among their top three desired benefits.

A home and tech salary sacrifice scheme allows employees to spread the cost of items such as:

Laptops and tablets
Smartphones
Kitchen appliances
Furniture

Through platforms like BHN Extras, your employees can access thousands of home and tech items from major UK retailers, often with additional savings. Find out more here.

Gym and wellbeing schemes

Today, with more focus on mental, physical and financial wellbeing, fitness related benefits are becoming increasingly important.

Gym discount schemes offered via salary exchange, or alongside it, can help your employees save on memberships across major UK fitness providers.

Physical activity is strongly linked to improved mental health and reduced absenteeism, making this type of salary exchange beneficial to both you and your employees.

Beyond salary sacrifice - additional ways to support financial wellbeing

While a salary sacrifice scheme is a powerful tool it works best as part of a broader benefits strategy.

Your employees are increasingly looking for everyday savings as well as support with larger purchases. And that’s where complementary benefits come in.

BHN Extras brings salary sacrifice together with everyday savings employees actually use, including cashback on shopping, discounted gift cards, wellbeing tools and flexible lifestyle benefits. That means your employees get support with both bigger purchases and everyday spending, all through one easy-to-manage platform.

How to introduce a salary sacrifice scheme

One of the most common misconceptions about salary sacrifice schemes is that implementing them is complex and resource heavy. In reality, modern platforms have made it straightforward and require minimum input from you.

Step 1 - Choose the right benefits mix

First, focus on the benefits that your employees actually want. This may include:

Tech and home essentials
Sustainable transport
Health and wellbeing

Step 2 - Ensure compliance

Salary exchange agreements must meet UK regulatory requirements, including:

Clear employee agreements
Compliance with National Minimum Wage rules
Alignment with HM Revenue & Customs guidance

Step 3 - Communicate early

Next, it’s important your employees understand how the scheme works, such as:

How payments are made
What savings they can expect
Any impact there may be on pension contributions or other benefits

Step 4 - Use a trusted provider

This is where BHN Extras comes in.

By bringing multiple benefits together in one place, BHN Extras makes it easy to:

Launch a salary sacrifice scheme
Offer additional financial wellbeing benefits
Manage everything with minimal admin

If you’d like to find out more about BHN Extras and the platform that allows you to deliver real value to your employees without adding cost or complexity, click here.

Why salary exchange schemes are here to stay

The shift from ‘salary sacrifice’ to ‘salary exchange’ reflects a broader change in how employers think about the benefits they offer their workforce. This isn’t about your employees giving something up. Rather, it’s about giving them more choice and control over how they use their earnings.

In a world where financial wellbeing, flexibility and sustainability are top priorities, salary exchange schemes tick all the right boxes. Cost effective for you and financially beneficial for your employees, salary exchange schemes are an essential part of any competitive benefits strategy.

If you’re ready to take the next steps, BHN Extras is here to support you in delivering an exceptional experience for your employees. Simply click here to get started.

Frequently Asked Questions About Salary Sacrifice Schemes

What is a salary sacrifice scheme? +

A salary sacrifice scheme, or salary exchange scheme, allows your employees to swap part of their gross salary for a non-cash benefit, such as a bike, laptop or electric car. Because payments are taken before tax and National Insurance, employees can make meaningful savings.

Is salary sacrifice legal in the UK? +

Yes. Salary sacrifice is HMRC-approved and is widely used by employers across the UK. Any employment benefits that are classed as benefits-in-kind will need to be reported using a P11D form at the end of the tax year.

Are salary sacrifice-led employee benefit packages costly for employers? +

Salary sacrifice arrangements are what is known as a zero-cost employee benefit. This is because, although you pay an initial upfront cost for the item (e.g., bike, car, washing machine), the employee pays you back on a monthly repayment agreement, which neutralises the cost to the business.

There's more good news. As salary sacrifice benefits reduce employee and employer National Insurance contributions, companies can even end up making money. That's why they're an attractive option to add to your employee benefits package.

Can all employees participate in salary sacrifice schemes? +

Most employees can participate in salary sacrifice schemes, but there are exceptions. For instance, employees earning close to the National Minimum/Living Wage cannot reduce their salary below this threshold. Additionally, some benefits may have specific eligibility criteria.

Is there a minimum or maximum salary sacrifice spend for employees? +

The amount of salary employees can sacrifice is largely up to them. All of the BHN Extras salary sacrifice schemes are designed to suit a wide range of budgets and needs. There is no set minimum spend on any scheme, but there are maximum spend limits on some schemes to protect both the employee and the employer.

The main consideration factor is to make sure that the employee is never put at risk of ending up in financial trouble by signing a salary sacrifice agreement. Therefore, the employee contribution must not take their earnings below the National Minimum Wage or National Living Wage.

Is it easy for employees to opt out of salary sacrifice benefits? +

Salary sacrifice scheme participation is voluntary, so an employee can opt out of ever entering a salary sacrifice agreement.

Those who do utilise the benefit must sign an agreement that confirms how much they will pay in return for the benefit. Once signed, this must be repaid even if the employee no longer wants/has the item or if they decide to leave the business. Their employment contract should be updated to reflect the range of benefits they have agreed to and what fixed time period they are bound by for repayments (usually 12, 24 or 36 months).

If an employee wishes to opt out of a salary sacrifice arrangement early, they can do so under certain circumstances. However, they will usually be required to make any outstanding payments before the benefit can be removed from their contract.

How do salary sacrifice schemes affect contributions to workplace pension schemes? +

Salary sacrifice can affect workplace pension contributions since these are typically calculated based on an employee's gross salary after the sacrifice. This means the contributions from both employer and employee could be lower, which may impact an employee's ultimate retirement savings. However, employers can choose to maintain their pension contributions at pre-sacrifice levels to ensure employees' pension pots are not negatively impacted.

Are there any tax implications when using salary sacrifice schemes? +

Yes, there are tax implications - good ones! Salary sacrifice schemes reduce an employee's taxable income, which means they pay less Income Tax and NI.

Employers also pay less National Insurance on the reduced salary. However, it's essential to ensure that the arrangements comply with HMRC regulations to avoid any tax issues.

Is there a minimum contribution from my company on any salary sacrifice schemes? +

No, there is no minimum contribution required from the company for salary sacrifice schemes. These schemes are designed to be cost-neutral for employers, meaning you can offer valuable benefits to your employees without additional financial outlay.

What happens if an employee leaves the company in the middle of a salary sacrifice agreement? +

If an employee leaves the company, the terms of the salary sacrifice agreement will outline how any outstanding payments are handled. Typically, the remaining balance for the benefit must be paid off, either by deducting from the final salary or through an alternative private arrangement.

How often can employees change their salary sacrifice arrangements? +

Employees will usually be free to change or enter into new salary sacrifice agreements during annual enrolment periods or after the completion of an existing agreement.

Changes made in the middle of an agreement are less common but can occur in reaction to a qualifying life event that has or will affect their financial status (e.g., maternity pay or universal credit entitlement). However, the exact terms should be outlined in the salary sacrifice agreement and any changes will need to be updated in the employee’s contract.

What benefits does BHN Extras offer? +

Through the Blackhawk Network Extras employee benefits platform, employees can access tech and home essentials, electric and hybrid cars, bicycles with accessories, and gym memberships on salary sacrifice schemes. There are other benefits that come with the platform such as bYond (prepaid shopping card), Extras Discounts (up to 15% off 100+ gift cards) and access to syd™ (life quality app).

BHN Extras is a free employee benefits platform. Simply sign up, activate the benefits you wish to offer, and onboard your employees with the help of the platform itself.

For businesses that operate an existing childcare voucher scheme, you may also make use of care-4 as a salary sacrifice scheme by moving existing participants over to Extras.

Join BHN Extras for free today or contact us if you have any questions or queries.

Are employee benefits complicated to manage as an employer? +

Blackhawk Network Extras handles supplier management, employee queries and admin support. Payroll integration is simple, and full guidance is provided at every stage with a member of the team on hand to help if needed.

Do salary sacrifice schemes affect statutory maternity pay or sick pay? +

Potentially, yes. Because salary sacrifice reduces gross salary, statutory payments linked to earnings, such as maternity pay or sick pay, could also be affected.

This won’t impact every employee in the same way, which is why it’s important to provide clear information and encourage employees to consider their personal circumstances before joining a scheme.

Is a salary sacrifice scheme really cost neutral for employers? +

In many cases, yes. While you fund the benefit upfront, the cost is recovered through payroll deductions. At the same time, reduced National Insurance Contributions can offset costs, making a salary sacrifice scheme cost neutral, or even cost saving.

Does salary sacrifice affect pensions or mortgage applications? +

It can, because salary sacrifice reduces gross salary. Some pension schemes calculate contributions based on post-sacrifice salary, whilst some mortgage lenders may assess affordability using the lower salary amount.

However, many lenders and pension providers now understand how salary sacrifice schemes work. Employees should still check how joining a scheme could affect their individual circumstances before signing up.

Are there any risks employees should be aware of? +

Yes, take home pay is reduced slightly because employees exchange part of their gross salary. However the tax savings and spread cost of purchases often mean they’re financially better off overall.

It’s also important employees understand that a salary sacrifice scheme may impact things like pension contributions and statutory benefits. Clear communication helps ensure employees can male informed decisions.

Why are salary sacrifice schemes considered tax efficient? +

Salary sacrifice schemes are considered tax efficient because payments are taken from gross salary before Income Tax and National Insurance contributions are applied.

This reduces taxable income for employees and can also lower Employer National Insurance contributions, helping create savings for both sides.

Are salary sacrifice schemes worth it during a cost of living crisis? +

For many employees, absolutely. Salary sacrifice schemes can make expensive purchases more manageable by spreading the cost through payroll deductions whilst also reducing Income Tax and National Insurance contributions.

At a time when employees are looking for practical ways to make their money go further, salary sacrifice schemes offer meaningful financial support without relying on traditional borrowing or high-interest credit.

Can smaller businesses offer a salary sacrifice scheme? +

Absolutely. A salary sacrifice scheme isn’t just for large organisations. With flexible platforms such as BHN Extras, businesses of all sizes can offer meaningful benefits without adding complexity or cost.

Can a salary sacrifice scheme be combined with other benefits? +

Yes, and it works best when it is. A salary sacrifice scheme can sit alongside benefits like cashback, discounts, and wellbeing tools - many of which are available through BHN Extras - to create a more complete financial wellbeing offering.