Salary sacrifice schemes in the workplace can make expenses more affordable for your staff. They can help employees save for lifelong goals such as retirement, but they can also help them access more immediate costs such as a low-emission car or a new bike and cycling accessories without paying the full cost upfront.

However, not every benefit works the same way. Tax treatment and eligibility rules vary, and payroll needs to be set up correctly for each individual salary sacrifice scheme. So, before choosing between the different salary sacrifice options available, it helps to understand what you’re offering, who can use it, and where the savings come from.

What is salary sacrifice?

A salary sacrifice scheme is an agreement between an employer and an employee in which the employee gives up part of their contractual gross salary in exchange for a non-cash benefit, such as those mentioned above.

The key point is that the payment is taken from the employee’s salary before Income Tax and National Insurance are worked out. This reduces the amount of salary that is taxed.

For example, if an employee exchanges £100 of gross salary for an eligible benefit (say, a new bike through a Cycle to Work scheme), they don’t usually lose the full £100 from their take-home pay. A basic-rate taxpayer could save £20 in Income Tax and £8 in National Insurance, meaning the benefit may effectively cost them around £72 instead. The exact saving depends on their tax band, the benefit they choose, and the rules of the scheme.

Employers may save money too, because they can pay less Employer National Insurance on the salary that has been exchanged.

A genuine salary sacrifice arrangement also changes the employee’s employment contract. It isn’t simply a deduction taken after tax, so the agreement must normally be in place before the employee becomes entitled to the pay being exchanged.

What are the main salary sacrifice options?

Many workplace benefits can be offered through salary sacrifice, but the strongest tax advantages now apply to a smaller group of options. These include registered pension contributions, Cycle to Work schemes, and qualifying low-emission company cars.

The best choice depends on what your people need:

• A pension supports long-term financial security
• An electric vehicle can make lower-emission driving more accessible
• A Cycle to Work scheme can cut commuting costs while supporting physical and mental wellbeing

Pension salary sacrifice

With pensions, an employee agrees to reduce their salary, and the employer pays the reduced amount into the employee’s pension on a monthly basis. Alongside the employer contribution, the employee makes their own monthly pension contributions.

Most eligible employees are automatically enrolled into their employer’s workplace pension. This usually applies when they’re:

• Aged between 22 and State Pension age
• Earn at least £10,000 a year
• Normally work in the UK

Employees can opt out, while people who aren’t automatically enrolled can usually ask to join.

In most automatic-enrolment pension schemes, the minimum total contribution is 8% of qualifying earnings: at least 3% from the employer and 5% from the employee, although employees can generally change their own contributions if they want to.

However, it’s important to clarify that a pension scheme generally isn’t considered a typical salary sacrifice scheme. This is because eligible employees are normally enrolled automatically into a workplace pension. Meanwhile, a salary sacrifice only applies when the employer offers it and the employee agrees to exchange their salary for it through monthly payments.

Electric vehicle salary sacrifice

An electric vehicle salary sacrifice scheme lets an employee exchange part of their gross salary for access to a leased vehicle. Packages often include servicing, maintenance, breakdown cover, road tax, and insurance, although inclusions vary between providers.

The employee pays Benefit in Kind tax because the car is available for private use. For a zero-emission company car, the appropriate percentage is 4% for the 2026/27 tax year, which remains far lower than the percentage applied to many petrol and diesel company cars.

However, employers and employees need to examine this benefit carefully, as vehicle leases can last several years. Policies should explain what happens during:

• Resignation
• Redundancy
• Parental leave
• Any other long-term absence
• An unexpected fall in pay

Employees should also compare the total cost of the salary sacrifice car with leasing, financing, or buying a car themselves, and work out which option is the most cost-effective for them. This includes looking at the effect on take-home pay, mileage limits, charging, insurance, maintenance, and any charges for damage or ending the agreement early.

Cycle to Work salary sacrifice

A Cycle to Work scheme is one of the simplest salary sacrifice options to understand for employers and employees alike.

Here’s how it works: through a cycle to work scheme, an employee chooses a bike, electric bike (e-bike), and cycling accessories through a provider such as Cyclescheme. An employer who offers the scheme then provides the equipment under a hire arrangement, and the employee repays the cost from their salary through monthly salary sacrifice payments. This is usually done over a 12 month period, but this depends on each individual cycle to work package and what works best for all parties.

With Cyclescheme, employees can save up to 47% on their new bike and eligible accessories. There’s nothing to pay upfront, and employees can choose from more than 2,600 retailers across the UK, including local bike shops, major stores, online specialists, and brand-direct suppliers.

Employees can also benefit and make savings too. Not only is Cyclescheme free to join with equipment costs recovered through salary sacrifice, but the employer can save up to 15% in Employer National Insurance Contributions on qualifying payments. These benefits are why the scheme is trusted by more than 50,000 employers and has helped over 1.2 million employees get riding.

What are the benefits of salary sacrifice for employers?

Salary sacrifice options come with a range of benefits for employers. While each individual salary sacrifice benefit has its own perks, a good combination as part of an employment package can support:

• Employee recruitment and retention
• Financial, physical, and mental wellbeing
• Sustainability and lower-carbon travel goals
• Employee choice across different life stages
• Potential Employer National Insurance savings

Overall, an employer that helps its employees save money with worthwhile benefits is an employer people are more likely to stick around for. In fact, recent research revealed that more than 9 out of 10 employees (91%) said modern benefits would make them more satisfied with their employer. That shows the power of strong benefits, which salary sacrifice options are a considerable part of.

Which salary sacrifice option is right for your workforce?

There isn't a single answer. The best salary sacrifice option depends on what your employees value most. If your workforce is focused on retirement planning, pension salary sacrifice may be the right fit. If many employees drive longer distances, an electric vehicle scheme could be attractive. If you want a low-cost, easy-to-manage benefit that supports wellbeing, sustainability and everyday commuting, a Cycle to Work scheme such as Cyclescheme is often one of the simplest places to start.

How can employers implement salary sacrifice successfully?

To successfully implement salary sacrifice schemes, employers should first choose benefits that solve a real employee need. For example, Cyclescheme helps to make cycling equipment and commuting more affordable whilst also having a positive impact on employee mental health, with 82% of Cyclescheme participants reporting feeling less stressed after cycle commuting.

When choosing providers for salary sacrifice schemes, also prioritise those that reduce the workload. This includes clear employee communications, reliable reporting, compliance support, and straightforward administration that doesn’t require excessive work from your side of the business.

Once a scheme has been chosen, involve HR, payroll, finance, and legal teams early. Set clear rules for eligibility, enrollment, contract changes, family leave, absence, and leavers.

And finally, promote the benefit in plain English. Explain how savings can be made in clear terms, and clearly explain how employees can easily sign up to encourage uptake.

Make Cycle to Work your next move

Cyclescheme is a salary sacrifice provider that makes this whole process easy. Registration takes minutes, employers get promotional support, employees apply online, and Cyclescheme manages the certificate and end-of-hire ownership process.

It’s a low-effort benefit that can create high-impact change with a mix of meaningful savings, no upfront employee cost, broad choice, and a benefit employees can use in everyday life.

As mentioned, employers can also join for free, save on qualifying National Insurance Contributions, and help more people discover a healthier, greener commute.

Join the UK’s original Cycle to Work scheme today and give your people a simpler, more affordable way to commute by bike.

Sign up to Cyclescheme for Free