Ian Beaumont is CEO at Omny Group, the only B2B people business in the UK to offer HR, Health & Safety, Employee Benefits and Employment law services under one roof, here explains why organisations shouldn’t disregard the benefits of salary sacrifice.
While the Chancellor’s Budget late last year seemed to spell the end for one of the most tax efficient employee benefits employers can offer, it’s important that organisations don’t write salary sacrifice schemes off yet. In fact, HR teams need to see salary sacrifice schemes as one of the most strategic levers in 2026. As the UK continues to experience high taxes and high costs, HR leaders are increasingly moving away from the blunt instrument of basic salary increases in favour of maximising the total employee benefits package.
Central to this shift is salary sacrifice, also referred to as salary exchange, which has transitioned from a niche tax-saving tool to become a strategic part of employee value propositions (EVP). For organisations looking to balance fiscal prudence with employee wellbeing, encouraging employees to uptake salary sacrifice schemes is imperative.
Protect income
Rising cost of living, frozen tax thresholds and the stagnation of economic growth has created a challenging environment for both businesses and middle-earners. In 2026, standard wage increases risk pushing employees into higher tax brackets resulting in diminishing returns for the individual and higher costs for the employer – National Insurance, pension contributions etc. Since mid-2024 the all in cost for a minimum wage employee working 35 hours per week has increased by 15%*.
By offering employees the opportunity to pay for services including vehicles and bicycles from their gross salary, employers can significantly ease the burden of modern living and boost employees’ disposable income. Simultaneously these schemes reduce National Insurance Contributions (NIC) for the individual and the company: a win-win for businesses. Salary sacrifice uses the same principle and takes additional pension contributions at source, lowering employees’ taxable income in exchange for greater long-term financial benefits. Currently less than 20% of SMEs use salary sacrifice schemes**, which could mean that business owners – already hit with high operating costs – are missing a trick.
Prioritise pension contributions
The government’s plan to cap NIC-exempt pensions contributions at £2,000 in the next few years represents a significant shift in employee benefits. This change in legislation will reduce a worker’s pension contributions, their take home pay and the value of their pension pot at retirement. As a result, employees might need to work longer than expected to afford retirement and it could alter their attitude to financial planning and their long-term savings behaviour. Ultimately, it will have negative consequences for financial wellbeing.
It is crucial to make the most of salary sacrifice while available. For directors and business owners who are already facing tax increases on dividends, using salary sacrifice to increase pension contributions over the next few years could improve tax efficiency on earnings, while building their retirement fund. At the same time, HR needs to educate staff on making the most of salary sacrifice options.
Improve financial wellbeing
An often overlooked area of employee health and wellbeing, financial concerns affect 41% of workers and 80% of employees facing financial stress report feeling anxious at least once a week (MHFA England). Furthermore, almost a quarter of managers (23%) say they are worried about the impact of cost of living on staff (MHFA England). Organisations cannot afford to ignore the effects on productivity, stress, and morale.
A simple first step to strengthening organisational health and wellbeing strategies is financial education. Equip leaders with the knowledge and tools to support staff’s concerns via managerial Lunch and Learn sessions that raise awareness of company benefits, including salary sacrifice. Company-wide personal finance sessions and providing access to a financial adviser are under-used but cost-effective benefits that can become a valued part of a wider employee wellbeing proposition.
Don’t leave it too late to plan!
While changes are scheduled for April 2029, it’s important that organisations don’t leave planning too late. Administratively, HR teams need to manage changes around payroll, wage forecasting and reporting. In some cases, it will be a straightforward process in partnership with payroll suppliers, however, workforces comprising people whose earnings and hours change weekly or monthly might require more complex systems to track the £2,000 contribution limit.
When estimating how this will affect a workforce, HR teams need to factor in all employees that make the standard auto enrolment 5% pension contributions and earn £40,000 or more and anyone below that earning bracket that makes pension contributions above the £2,000 limit. Organisations will also need to assess how the loss of employer NIC savings, which are often used to fund other benefits or reinvested into pension top-ups, will affect the long-term viability of current benefit structures.
Communication and engagement with workers are key throughout this period to reassure them and ensure they understand the options available to them.
While UK businesses are facing targeted taxation, difficult trading conditions and increasing costs of employment, all hope is not lost. There are still more than three years to take advantage of salary sacrifice available and, with another General Election due in 2029, the legislative landscape could change again. Regardless, the mandate for HR remains the same. To attract and retain top talent in a challenging labour market, organisations must look beyond the pay packet. Consulting with employees to understand which benefits they really value, referring to industry specialists and comparing offerings with competitors will help to create the most attractive package.
References
* 15% increase is a combination of:
- Increase in minimum wages (went from £11.44 to £12.21) plus
- Increase in Company NI Rates (went from 13.8% to 15%)
- Reduction in Threshold, i.e. the level of which Employer NI became payable (reduced from £9,100 to £5,000)
**Omny Group, 2025
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