Salary sacrifice

5.8.1 A salary sacrifice happens when an employee gives up part of the cash pay due under their employment contract. In return their employer gives them some form of non-cash benefit. The sacrifice varies the employee’s employment terms and conditions relating to their pay.

5.8.2 Members will pay less National Insurance Contributions, this could impact on State Benefits and they should contact the Department for Work and Pensions for details.

5.8.3 A reduction of an employee’s salary normally affects their pension benefits. The employee’s pension rights will normally be worth less because of the reduction in their pensionable earnings. Employees sacrificing salary do not suffer a reduction in pension. You must tell the Scheme Administrator about the member’s salary sacrifice. When working out the employee’s pensionable earnings, the Scheme Administrator will ignore the salary sacrifice. The Scheme Administrator will use the member’s pre-sacrifice salary to work out their pensionable earnings. You must make sure that your payroll provider records the amount of salary the employee sacrifices as a notional permanent pensionable allowance. You must base the members’ contributions on their pre-sacrifice salary. The ASLC you pay will also be based on the members’ pre-sacrifice salary.

4 January 2022
Last updated:
5 September 2022