An Employer’s Guide to Salary Sacrifice Scheme Options (UK)

Salary sacrifice can be one of the most effective ways to improve an employee benefits package, or one of the easiest ways to add complexity without much return.

It just comes down to which one you choose and the provider you go with.

This guide breaks down the main salary sacrifice scheme options available in the UK and explains how they tend to perform in practice. It covers how salary sacrifice works, which schemes are worth prioritising, what to watch out for, and how to choose an option that fits your workforce, salary structure, and wider business goals, including sustainability.

If you’re weighing up salary sacrifice for the first time, or reassessing an existing scheme, this is a practical, experience-led overview of what actually works.

What is a salary sacrifice scheme?

A salary sacrifice scheme is a formal agreement between an employer and an employee where the employee gives up (sacrifices) part of their gross salary in exchange for a non-cash benefit. 

Instead of receiving that portion of pay as cash, the employer provides a benefit such as pension contributions, a bike, or even an electric car.

Because the sacrifice happens before tax and National Insurance are applied, both employees and employers can save money. That’s what makes salary sacrifice one of the best employee benefits available in the UK. Employees get access to valuable benefits at a lower effective cost, while employers can offer a competitive benefits package without increasing overall payroll spend.

What salary sacrifice isn’t: Salary sacrifice is not salary deduction. With salary sacrifice, the employee’s contractual salary is reduced in exchange for a benefit, which has tax implications. A salary deduction, by contrast, is taken from net pay and offers no tax advantage. 

How it works

From an employer’s point of view, salary sacrifice is a clear, structured process rather than a complex benefit to manage. Here’s roughly how salary sacrifice works:

1. The employer sets up a salary sacrifice scheme with a provider and defines which benefits are available to employees.
2. An employee opts in and agrees to reduce their gross salary by a fixed amount in exchange for a benefit.
3. Payroll applies the salary reduction before tax and National Insurance, ensuring minimum wage rules are met.
4. The employer provides the benefit, and the arrangement continues for the agreed period.

When implemented correctly, salary sacrifice schemes are HMRC-compliant, predictable, and typically cost-neutral. 

5 Salary sacrifice options available in the UK

Some sacrifice schemes are popular because they’re familiar or easy to set up. Others genuinely move the dial on recruitment, retention, and employee satisfaction. A few sound attractive, but see low uptake once they’re live. 

Not every scheme will be relevant for every organisation, and many employers choose to offer just one or two rather than a broad mix.

Below, we’ve outlined the most common salary sacrifice options available in the UK, explaining what each scheme is, how it works at a high level, and where it tends to sit within an overall rewards strategy.

Pension salary sacrifice

Pension salary sacrifice allows employees to make pension contributions through a reduction in their gross salary rather than from net pay. The employer then pays the sacrificed amount directly into the employee’s pension as an employer contribution.

For employers, it’s predictable and relatively easy to administer. Most finance teams will understand the scheme and be able to implement it with minimal complications.

However, because the benefit doesn’t change an employee’s day-to-day life, it doesn’t often generate engagement or excitement. 

It rarely influences how an employee feels about their employer.

That’s why pension salary sacrifice works best as a solid foundation for a benefits package, but not usually as the benefit that defines an employer’s offer or drives strong differentiation on its own.

Electric vehicle (EV) salary sacrifice

Electric vehicle (EV) salary sacrifice lets employees get an electric car through their employer by giving up a portion of their gross salary. The employer provides the vehicle as a benefit, with the cost recovered via payroll over an agreed term.

Rather than being a benefit that sits quietly in the background like the pension option, an electric car is highly visible, used daily, and immediately felt by employees. 

That tangibility is a key reason many employers now explore EV schemes alongside, or even ahead of, more traditional options.

From an employer perspective, EV salary sacrifice combines several factors that don’t often exist together: 

• a benefit employees actively want
• a structure that can be run in a cost-neutral way
• a way to be more sustainable as a business and individuals
• and a UK tax framework that strongly favours electric vehicles

Low Benefit-in-Kind (BIK) rates make EVs particularly well suited to salary sacrifice, and with the right provider, schemes can be made accessible across a wide range of salary bands.

EV salary sacrifice schemes are also designed very differently from early car benefit models. Providers like loveelectric focus on keeping setup and ongoing administration simple, while building in protections that reduce risk for employers if an employee leaves or circumstances change. 

Given the cost of electric vehicles, salary sacrifice is one of the only benefits that can materially change what employees can afford, which is why EV schemes are often positioned as the headline offering within a modern benefits package.

For a more detailed look at how employees access a vehicle through this type of scheme, see our step-by-step guide on how to get a car on salary sacrifice.

Cycle to Work scheme

With the Cycle to Work scheme, employees can get a bicycle and related safety equipment through a salary sacrifice arrangement, with the cost spread via payroll. 

It’s generally straightforward to set up and carries little financial or administrative risk.

Cycle to Work is often positioned as a low-cost, low-commitment benefit. It can appeal to employees who already cycle or are motivated by health and sustainability goals.

However, the overall financial impact for most employees is relatively modest. 

Scheme limits and caps also mean the benefit is constrained in scope, particularly when compared with higher-value salary sacrifice options. Because of this, Cycle to Work schemes tend to have a narrower audience and are less aspirational than other benefits.

Uptake can be uneven, and engagement is often concentrated within a specific group rather than across the wider the business.

For most employers, Cycle to Work works best as a supporting benefit, something that complements a broader benefits package, rather than a headline scheme that materially shapes how employees perceive their overall reward offering.

Childcare salary sacrifice

Workplace nursery and childcare salary sacrifice schemes let employees pay for eligible childcare costs through a reduction in their gross salary. 

Unfortunately, these schemes are now closed to new entrants, meaning only employees who joined before the changes can continue to benefit. It was phased out in favour of the new Tax-Free Childcare (TFC) system. The cut-off date was October 4th, 2018.

This makes childcare salary sacrifice largely a legacy scheme. Sure, it can still be valuable for a small group of employees, but it’s not something organisations can introduce as part of a new or refreshed benefits strategy.

Technology salary sacrifice schemes

Technology salary sacrifice schemes let employees spread the cost of items such as laptops, phones, tablets, or other work-related equipment through a reduction in their gross salary. 

The exact products available, and how the scheme operates, often vary by employer and provider.

For HR teams, these schemes can feel flexible and relatively easy to introduce, particularly where employees already expect to upgrade personal devices regularly. However, the tax efficiency of technology salary sacrifice is generally more limited than other options, especially when compared with pensions or electric vehicles.

Another consideration is consistency and perceived fairness. Because technology schemes are often used on an ad hoc basis and at different price points, they can create uneven value across the workforce. Some employees may see clear benefit, while others have little reason to engage.

Because of that, technology salary sacrifice schemes tend to work best as optional, supporting benefits. They can add flexibility to a wider rewards package, but they rarely deliver the scale of impact or engagement needed to justify being used to retain or attract talent.

What are the advantages of a salary sacrifice scheme?

Salary sacrifice schemes are in the benefits category for a reason. And there are benefits to be had by both employees and employers. 

Advantages for employers

Usually with benefits, an employer is looking for a way to enhance their EVP and keep top talent for longer. Salary sacrifice does just that. But that’s not all it does:

• Cost-neutral or cost-saving: Salary sacrifice benefits are funded through reductions in gross salary rather than additional employer spend. In many cases, employers can also make National Insurance savings, making it possible to enhance benefits without increasing payroll costs.
• Improved employee retention: Well-chosen salary sacrifice schemes tend to encourage employees to stay longer, particularly when the benefit is difficult to replace elsewhere. This can be especially valuable in competitive labour markets.
• Stronger Employee Value Proposition (EVP): Offering salary sacrifice signals that an employer is thoughtful about how people are rewarded. It adds depth to a benefits package and helps move the conversation beyond base salary alone.
• Competitive advantage in hiring: Salary sacrifice schemes can help roles stand out when candidates are comparing similar offers. Practical, high-value benefits often influence decision-making at the offer stage.
• Predictable payroll processes: Deductions are agreed upfront and processed through payroll, creating consistency and reducing the need for ad hoc expenses or reimbursements.

Advantages for employees (including senior leaders)

Whether junior or senior, employees want benefits that improve their lives. Here’s how salary sacrifice delivers:

• Income Tax and National Insurance savings: Because salary sacrifice is taken from gross pay, employees can reduce their tax and National Insurance liability compared with paying for the same benefit from net income.
• Access to benefits that may otherwise be unaffordable
  Salary sacrifice can make higher-cost benefits realistically accessible, particularly when costs are spread across monthly payroll deductions.
• Predictable monthly costs: Fixed deductions make budgeting easier and remove the need for large upfront payments or unexpected bills.
• More value from existing pay: Rather than increasing salary, employees receive more practical value from their existing compensation, something that can be appealing across all seniority levels.
• Favourable tax treatment for certain benefits: Some schemes, such as electric vehicle salary sacrifice, benefit from particularly supportive tax treatment. Low Benefit-in-Kind rates can significantly improve affordability

Are there any disadvantages to salary sacrifice schemes?

Every rose has its thorn, and every pro has its con. Here are a few things to look out for as you consider whether a salary sacrifice scheme is worth implementing into your benefits package.

Disadvantages for employers:

Usually when implementing a new benefit, employers are balancing impact against complexity. Salary sacrifice can be highly effective, but there are some practical points to account for:

• Eligibility constraints: Salary sacrifice schemes must comply with National Minimum Wage rules, which can limit eligibility for some lower-paid employees. This needs to be managed carefully to remain compliant.
  
  
• Risk of low uptake: Not all salary sacrifice schemes generate the same level of employee interest. Some benefits may see limited participation, depending on workforce demographics and how the scheme is communicated.
  
  
• Payroll and HR coordination required: Salary sacrifice involves changes to gross pay, which means payroll and HR teams need to work closely together, particularly during setup and when employees join or leave schemes.
  
  
• Employee education is essential: Because salary sacrifice affects gross salary, employees need clear guidance to understand how it works and how it impacts their pay. Without proper communication, confusion can reduce uptake or trust.
  
  
• Perceived inequality across the workforce: Some schemes may be more suitable for certain salary bands or life stages than others. If not positioned carefully, this can create a perception that your scheme favours one group over another.

Disadvantages for employees:

From an employee perspective, salary sacrifice can be so appealing, they start to wonder, ‘what’s the catch?’. While there really is very little to worry about, there are some potential drawbacks to consider:

• Potential impact on mortgage affordability: Because salary sacrifice reduces contractual gross salary, some lenders may base affordability calculations on the reduced figure rather than headline pay.
• Effect on statutory pay: Benefits linked to gross salary, such as statutory maternity pay or sick pay, can be affected if salary sacrifice reduces earnings below certain thresholds.
• Eligibility constraints: Employees must remain above minimum wage after sacrificing salary, which can limit access to some schemes.
• Limited flexibility with some schemes: Many salary sacrifice arrangements run for a fixed term, meaning employees may have less flexibility to change or exit early.
• What happens if circumstances change: Changes such as leaving a role, reducing hours, or taking extended leave can affect how a scheme continues, so it’s important employees understand the implications upfront.

Offering a salary sacrifice scheme – What it entails for employers

Got it in your head that salary sacrifice is an admin nightmare? We hear it all the time from companies who are on the fence about introducing a scheme for the first time. And we relish the opportunity to reassure them that, while older models often were complex, modern salary sacrifice schemes, particularly EV-focused ones, are designed to be far simpler to run.

What setup typically involves

Initial setup is a one-off process. It usually means choosing a provider, agreeing how the scheme will work, and aligning payroll so salary reductions are handled correctly.

This is where scheme design matters. Providers that specialise in a single benefit type, such as EV salary sacrifice, tend to keep setup tightly scoped and easier to manage, rather than spreading complexity across multiple benefit categories.

What ongoing admin looks like

Once the scheme is running, ongoing admin is usually limited to routine changes, such as payroll adjustments when employees join or leave a scheme.

There’s no need to manage individual payments, track invoices, or oversee the benefit day to day. With the right provider, this becomes part of normal payroll operations rather than an additional HR workload.

Day-to-day management, such as vehicle queries, insurance, or employee support, can sit with the provider rather than HR. Models like loveelectric’s are designed so payroll runs as normal and employees are supported directly, keeping HR involvement light.

Managing risk and cost

Understandably, employers want to know how edge cases are handled. What happens if someone leaves mid-term? What if their circumstances change?

These scenarios should be built into the scheme from day one. Strong salary sacrifice schemes include clear processes and employer protections so unexpected costs don’t fall back on the business. 

When structured properly, schemes are also designed to be cost-neutral, with benefits funded through salary reductions rather than additional spend.

EV salary sacrifice schemes like loveelectric’s include safeguards, such as zero-risk guarantees for employers, so unexpected costs aren’t passed back to the business.

How to choose what salary sacrifice scheme to offer

Not every salary sacrifice scheme will make sense for every organisation. 

The right choice depends not only on who your workforce is, but also on what you’re trying to achieve as a business, whether that’s improving retention, responding to what employees have asked for, or supporting priorities like sustainability. 

Rather than offering every option available, it’s usually better to prioritise one or two schemes that fit your workforce and your wider objectives.

Start with your workforce

Understanding who your employees are is the first step. 

Factors such as age profile, household circumstances, commuting habits, and attitudes to sustainability all influence which schemes are likely to land well. A scheme that works for a predominantly office-based workforce may see very different uptake in a remote or hybrid team.

Look at salary distribution and access

Salary sacrifice schemes are subject to eligibility rules, including minimum wage thresholds. This means not every employee will be able to participate in every scheme.

When assessing options, it’s important to consider how accessible the scheme will be across your company, not just how attractive it looks. Schemes that exclude large sections of employees can undermine the goal of offering fair, inclusive benefits.

In the past, EV salary sacrifice fell into that category. But now, through providers like loveelectric, the scheme has become more driver-centric and open to more employees. This is because:

• eligibility and affordability checks are optimised for wider salary access
• new and used EVs are included to broaden participation
• we source from multiple brokers to get the most competitive prices

Consider uptake and perceived value

Some salary sacrifice schemes appeal to a narrow group, while others resonate much more broadly. Higher uptake generally means greater impact, both in how the benefit is perceived and in how effectively it supports business goals. 

Schemes with a clear, tangible outcome tend to perform better than those that are harder to see or feel.

Weigh admin burden and financial risk

Different schemes place very different demands on HR and payroll teams. Before choosing a scheme, it’s worth being clear on:

• the level of ongoing administration required
• how leavers and changes in circumstances are handled
• where financial risk sits if something doesn’t go to plan

Schemes that are simple at launch but complex to manage over time can quickly lose their appeal.

Why an EV salary sacrifice scheme delivers the biggest impact

Across the different salary sacrifice options available, electric vehicle schemes tend to deliver the widest and most visible impact. That’s largely because they sit at the intersection of engagement, savings, and sustainability — three areas where many traditional benefits struggle to overlap.

From an engagement perspective, an electric car is a benefit employees interact with every day. It’s highly visible, immediately useful, and easy to understand, which means it tends to generate stronger interest and uptake than benefits that operate quietly in the background.

EV salary sacrifice can also unlock meaningful savings. Favourable tax treatment for electric vehicles, combined with salary sacrifice, means employees can often access cars that would otherwise be out of reach. For employers, this can be achieved without increasing payroll costs when schemes are structured correctly.

Sustainability is the third piece. For businesses with environmental goals, EV salary sacrifice provides a practical way to support lower-emission travel without relying on policy statements alone. It allows sustainability commitments to show up in a tangible, everyday benefit.

That said, not all EV salary sacrifice schemes are built the same. When choosing a provider, employers should look for a model that:

• keeps admin light for HR and payroll teams
• manages risk if employees leave or circumstances change
• offers broad vehicle choice, including used EVs
• is designed around accessibility, not just headline savings

This is where loveelectric’s EV-only approach aligns closely with employer needs. By focusing exclusively on EV salary sacrifice, the scheme is designed end-to-end to remove friction, protect employers from risk, and make the benefit genuinely usable across the business.

If you’re exploring whether EV salary sacrifice could work for your organisation, you can learn more about the scheme for employers, download the employer brochure, or book a demo to see how the scheme works in practice

If you’re curious about what the scheme could do for you, check out your potential savings with the salary sacrifice calculator or browse the range of electric cars available.

Salary sacrifice scheme FAQs

Which is the ‘best’ salary sacrifice option for you and your employees?

The best salary sacrifice option is the one that most employees can actually use and value.

Schemes that are easy to understand, broadly accessible, and deliver a tangible benefit tend to outperform niche or overly complex options. While foundational schemes like pensions are important, employers looking for visible impact usually prioritise benefits that employees interact with regularly and feel in their day-to-day lives like those where they can offer EVs.

Which providers should employers consider?

In our experience, specialist providers tend to outperform generalists because they’ve built their processes, protections, and support around a specific use case. If you’re looking for an EV provider, we’ve put together a list of the best salary sacrifice car scheme providers in the UK.

What can you salary sacrifice?

Only certain benefits are suitable for salary sacrifice, and employers are best served by being selective. Common options include pensions, electric vehicles, Cycle to Work, and some technology schemes. In reality, offering a smaller number of well-designed schemes usually works better than offering everything possible. Breadth matters less than whether employees can understand and use the benefit.

Does salary sacrifice reduce taxable income?

Yes. That’s the core mechanism behind salary sacrifice. By reducing an employee’s contractual gross salary, Income Tax and National Insurance are calculated on a lower amount. That said, the actual savings depend on the benefit involved and any specific tax rules that apply, such as Benefit-in-Kind. 

How to calculate salary sacrifice?

Salary sacrifice is calculated by agreeing a fixed reduction to gross salary, which payroll then applies before tax and National Insurance. Good schemes make this easy to understand upfront, using clear illustrations or calculators rather than leaving employees to work it out themselves. 

Does salary sacrifice affect pension?

Because salary sacrifice reduces contractual salary, pension contributions can be affected if they’re based on that figure. 

What if uptake is low?

Low uptake usually points to a mismatch between the scheme and what the employees want, rather than a problem with salary sacrifice itself. In our experience, schemes struggle when they’re hard to explain, only accessible to a small group, or perceived as complicated. Employers often see better results by simplifying the offer or focusing on schemes with broader appeal rather than trying to drive uptake through repeated comms alone.

Can smaller companies offer salary sacrifice?

Yes, and size is rarely a limiting factor. The real question is whether the scheme is designed to be admin-light and cost-neutral. Many smaller companies successfully offer salary sacrifice by choosing providers that handle complexity on their behalf, rather than relying on in-house HR resources. With the right setup, smaller employers can offer the same schemes as much larger organisations.