Salary Sacrifice Employer NI Calculator

How much could your business save through salary sacrifice?

When staff give up part of their gross salary in exchange for a benefit - a bigger pension contribution, a cycle to work bike, an electric car lease - that sacrificed amount stops being "salary" for tax and National Insurance purposes. It is paid instead as a non-cash benefit, and because it never appears as pay, your business does not pay employer National Insurance on it. At the 2026/27 employer NI rate of 15%, that is a real, recurring saving on every pound sacrificed, not a one-off. This calculator adds it up across your whole participating workforce - number of employees times average sacrifice times 15% - so you can see the total annual figure for your business, and model how much of that saving (if any) you want to pass back to staff rather than keep as a straight cost reduction.

How the employer NI saving is worked out

The mechanics are simple once you see them side by side. Employer Class 1 NI is charged at 15% on an employee's gross pay above the £5,000 secondary threshold, with no upper limit. Salary sacrifice reduces the contractual gross pay figure that this 15% is calculated on. So for every £1,000 an employee sacrifices, employer NI drops by £150 - and that is true whether the £1,000 funds a pension contribution, a cycle to work bike, an EV lease or workplace nursery fees, because HMRC treats all correctly-structured sacrifice arrangements the same way for NI purposes. The one condition that matters is that post-sacrifice pay must stay above the £5,000 threshold and above National Minimum Wage - true for almost every real-world sacrifice scheme, since sacrifice amounts are typically a modest slice of total salary.

Multiply that £150-per-£1,000 rate across your whole scheme and the numbers add up quickly. A business with a handful of participants might save a few hundred pounds a year; a mid-sized employer with dozens of staff sacrificing into pensions can easily be looking at five figures annually - money that would otherwise simply be paid to HMRC.

Worked example

Take a business with 35 employees in its salary sacrifice pension scheme, each sacrificing an average of £1,800 a year. Total salary sacrificed is 35 × £1,800 = £63,000. At 15%, the employer NI saving is £63,000 × 15% = £9,450 a year - about £270 per employee on average. If the business decides to pass half of that back into staff pensions as an extra employer contribution, £4,725 goes to employees as enhanced retirement saving, and the business keeps £4,725. Left unchanged for five years at the same headcount and sacrifice level, that is a cumulative saving of roughly £47,250 - illustrating why even modest participation rates are worth tracking properly rather than treating as background payroll noise.

Should you pass some of the saving back to staff?

There is no rule requiring an employer to share the NI saving from salary sacrifice - it is a genuine cost reduction the business is entitled to keep in full. In practice, three approaches are common:

• Keep it as a straight saving. Simplest to administer, and a reasonable choice given how much employer payroll costs rose after the April 2025 NI rate increase and secondary threshold cut.
• Pass some or all of it back as an extra pension contribution. Popular with employers who want salary sacrifice to be visibly good for staff, not just for the business - it turns "we saved £9,450" into "we added £4,725 to the team's pensions at no extra cost to anyone."
• Use it to fund scheme running costs or a one-off benefit. Some employers put the saving toward administration, a wellbeing budget, or a modest annual bonus pool instead of an ongoing pension top-up.

Whichever route you choose, put it in writing as part of your salary sacrifice policy so staff understand what happens to the saving - it is a good-faith and communication point, not a legal obligation.

Employment Allowance and other considerations

Employment Allowance reduces a small employer's total annual Class 1 NI bill by up to £10,500 in 2025/26 (the £100,000 eligibility cap was removed from April 2025, opening it to more businesses). This is a separate mechanism from the salary sacrifice saving - it does not change the 15% marginal rate calculated in this tool, but if your business is still within its Employment Allowance for the year, part of the "saving" from sacrifice may just be reducing NI you would not have had to pay in cash anyway. Once your Employment Allowance for the year is used up, every pound sacrificed genuinely reduces your cash NI bill by 15p. It is also worth remembering that employer pension contributions themselves (including any amount you pass back to staff) are exempt from employer NI, so passing the saving back through pension does not create a new NI liability.

Frequently asked questions

How much employer NI do we save per pound of salary sacrificed?

15% in 2026/27 (unchanged from the April 2025 rate rise), provided the employee's reduced gross pay stays above the £5,000 secondary threshold - true for the vast majority of salary sacrifice arrangements. So every £1,000 sacrificed saves the employer £150 a year in Class 1 NI.

Does the type of salary sacrifice scheme change the NI saving?

No. Pension contributions, cycle to work, electric car leases and workplace nurseries all work the same way for NI purposes: the employee's contractual gross salary is reduced, and employer NI is calculated on the lower figure. The 15% saving applies equally regardless of which qualifying scheme the sacrifice funds.

Should we pass the employer NI saving back to staff?

There is no legal requirement to. Many employers choose to add some or all of the saving into the employee's pension as an extra employer contribution, both as a recruitment and retention benefit and because it can be presented clearly during pay review conversations. Others keep the saving to offset the wider payroll cost increases since April 2025.

Does Employment Allowance change this calculation?

Employment Allowance (£10,500 for eligible small employers) is a separate, fixed annual reduction applied to your total employer Class 1 NI bill - it does not change the 15% marginal saving per pound sacrificed. If your business is still within its Employment Allowance for the year, part of the saving from salary sacrifice may simply reduce NI you would not have paid anyway, so the practical cash benefit can be smaller until the allowance is used up.

Is there a limit to how much salary staff can sacrifice?

Yes. The sacrifice must not take contractual pay below the National Minimum or National Living Wage, and pension-related sacrifice is still subject to the employee's Annual Allowance. HMRC also requires a genuine, effective contractual variation - not just a payslip relabeling - for the arrangement to qualify for the NI treatment.

How do we set up salary sacrifice on payroll?

You need a written contractual variation confirming the employee's gross salary is reduced in exchange for the benefit (pension contribution, car lease, cycle, etc). Payroll then runs tax and NI on the lower post-sacrifice salary figure. Most payroll software and pension providers have standard salary sacrifice templates and guidance for setting this up correctly.

Source: Employer Class 1 National Insurance rate, secondary threshold and Employment Allowance from GOV.UK – Employer National Insurance rates and GOV.UK – Claim Employment Allowance. Salary sacrifice rules from GOV.UK – Salary sacrifice and the effects on PAYE.