--- title: "Salary Sacrifice: A Guide for Employers 2026/27" description: "Salary sacrifice guide 2026/27: how it works, qualifying benefits, OpRA rules, EV tax rates, and the upcoming 2029 pension NI cap for employers." image: https://www.dhpayroll.co.uk/hubfs/pexels-kindelmedia-7688082%20(1).jpg --- [Skip to main content](https://www.dhpayroll.co.uk/blog/salary-sacrifice-a-guide-for-employers-2026/27#main) [![dhpayroll](https://www.dhpayroll.co.uk/hs-fs/hubfs/Child%20Theme%20July/logo-header.png?width=207&height=56&name=logo-header.png) ![dhpayroll](https://www.dhpayroll.co.uk/hs-fs/hubfs/Child%20Theme%20July/logo-header.png?width=207&height=56&name=logo-header.png) ![dh payroll logo](https://www.dhpayroll.co.uk/hs-fs/hubfs/dh%20payroll%20logo.png?width=50&height=36&name=dh%20payroll%20logo.png) ![dh payroll logo](https://www.dhpayroll.co.uk/hs-fs/hubfs/dh%20payroll%20logo.png?width=50&height=36&name=dh%20payroll%20logo.png)](https://www.dhpayroll.co.uk/) - [Home](https://www.dhpayroll.co.uk) - 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When set up correctly it saves money for both the employer and the employee. This guide explains how salary sacrifice works, which benefits qualify, what the rules are for 2026/27, and what is changing in the years ahead. ## What Is Salary Sacrifice? A salary sacrifice arrangement is an agreement to reduce an employee's entitlement to cash pay, usually in return for a non-cash benefit. As an employer, you set up the arrangement by changing the terms of the employee's employment contract. The employee must agree to this change. The employee's gross salary is reduced by the agreed amount before tax and National Insurance are calculated. Because the taxable salary is lower, both the employee and employer pay less National Insurance. The employer provides the benefit in place of the salary given up. The process follows four clear steps: the employer and employee formally agree to vary the employment contract; the revised contract confirms the reduced salary and the benefit provided in exchange; the employee's gross salary is reduced before tax and NI are calculated; and the employer provides the agreed benefit. ## How Much Can an Employee Save? The saving depends on the benefit, the employee's [tax](https://www.davidhoward.co.uk/tax-services) rate, and their NI rate. Here is a straightforward example for a basic rate taxpayer sacrificing £1,200 per year into a pension: |   | **Without Sacrifice** | **With Sacrifice** | | --- | --- | --- | | Gross Salary | £30,000 | £28,800 | | Income Tax (20%) | Paid on £30,000 | Paid on £28,800 | | Employee NI (8%) | Paid on £30,000 | Paid on £28,800 | | Employee Saving | — | Approx. £336 per year | | Employer NI (15%) | Paid on £30,000 | Paid on £28,800 | | Employer Saving |   | Approx. £180 per year | Many employers choose to pass some or all of their NI saving back to the employee by increasing the pension contribution, making the arrangement even more valuable. ## Which Benefits Can Be Sacrificed? The most commonly used salary sacrifice arrangements include: ## Optional Remuneration Arrangements -OpRA Rules All salary sacrifice arrangements must meet HMRC's Optional Remuneration Arrangements rules, known as OpRA. These rules were introduced in April 2017 to prevent employees from exchanging salary for benefits with a lower taxable value than the cash given up. Under OpRA, the taxable value of most benefits provided through salary sacrifice is the higher of the benefit in kind value or the amount of salary sacrificed. However, certain benefits are exempt from OpRA and retain their full tax advantage regardless of the salary given up. These include: This is why electric vehicle salary sacrifice remains particularly attractive -it sits outside OpRA entirely and retains its full tax and NI relief. ## Rules and Restrictions There are several important rules employers must follow: A salary sacrifice arrangement must not reduce an employee's cash earnings below the [National Minimum Wage](https://www.dhpayroll.co.uk/blog/national-mimimum-wage-and-national-living-wage) rates. Employers must put procedures in place to cap salary sacrifice deductions and ensure NMW rates are maintained at all times. If an employee wants to opt in or out of a salary sacrifice arrangement, the employment contract must be amended with each change. The contract must be clear on what the employee's cash and non-cash entitlements are at any given time. Salary sacrifice can affect statutory payments such as maternity pay, paternity pay, and sick pay, as these are calculated using average earnings. If salary is reduced through sacrifice, statutory entitlements may also reduce. Employers should explain this clearly to employees before they enrol. ## Reporting Requirements Most non-cash benefits provided through salary sacrifice must be reported to HMRC at the end of the tax year. From April 2027, many of these benefits will need to be reported in real time through payroll as part of the mandatory payrolling of benefits in kind regime. Employers should begin reviewing their[payroll](https://www.dhpayroll.co.uk/) systems now to ensure they are ready. ## Electric Vehicle Salary Sacrifice in 2026/27 Electric vehicle salary sacrifice remains one of the most compelling benefits an employer can offer in 2026/27. The benefit in kind rate for zero-emission cars is just 4% for 2026/27, rising to 5% in 2027/28, 7% in 2028/29, and 9% in 2029/30. These low rates mean the tax payable on an electric company car is significantly lower than for a petrol or diesel equivalent. Electric car salary sacrifice is governed by separate benefit in kind legislation specifically designed to encourage EV adoption and is completely unaffected by the upcoming pension salary sacrifice changes. ## Big Change Coming -Pension Salary Sacrifice Cap from April 2029 The most significant change on the horizon for salary sacrifice is a new cap on NI relief for pension contributions. From 6 April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will be exempt from National Insurance contributions. Any amount sacrificed above £2,000 will be subject to both employee and employer Class 1 NI at the usual rates. [Income tax](https://www.davidhoward.co.uk/income-tax)relief on pension contributions through salary sacrifice remains completely unchanged. All employer pension contributions -whether made via salary sacrifice or not -will continue to be free of NI contributions. To illustrate the impact, using 2026/27 NI rates: | **Annual Pension Sacrifice** | **Amount Subject to NI from April 2029** | **Employee NI Cost** | **Employer NI Cost** | | --- | --- | --- | --- | | £2,000 | £0 | £0 | £0 | | £3,000 | £1,000 | £80 (8%) | £150 (15%) | | £5,000 | £3,000 | £240 (8%) | £450 (15%) | | £10,000 | £8,000 | £640 (8%) | £1,200 (15%) | Around 3.3 million UK employees and approximately 290,000 employers are expected to be affected by this change. Most employees making typical auto enrolment contributions are unlikely to see any impact -the change primarily affects those making higher pension contributions through sacrifice, particularly higher earners and those with enhanced pension packages. ## What Employers Should Do Now Although the pension cap does not come into force until April 2029, the lead time is important:   [Company Payroll Services](https://www.dhpayroll.co.uk/company-payroll) [Managed Payroll Services](https://www.dhpayroll.co.uk/managed-payroll) Director Payroll [Payroll for Accountants](https://www.dhpayroll.co.uk/payroll-outsourcing-for-accountants) [Auto Enrollment Service](https://www.dhpayroll.co.uk/pensions-auto-enrolment) [Electronic Payslips](https://www.dhpayroll.co.uk/electronic-payslips) ###### Posts by topic: - [Payroll Compliance](https://www.dhpayroll.co.uk/blog/tag/payroll-compliance) - [Payroll Outsourcing Advice](https://www.dhpayroll.co.uk/blog/tag/payroll-outsourcing-advice) - [Payroll Thresholds and Rates](https://www.dhpayroll.co.uk/blog/tag/payroll-thresholds-and-rates) - [HR Services](https://www.dhpayroll.co.uk/blog/tag/hr-services) - [Industry-Specific Payroll Advice](https://www.dhpayroll.co.uk/blog/tag/industry-specific-payroll-advice) - [Payroll Technology](https://www.dhpayroll.co.uk/blog/tag/payroll-technology) - [News & Events](https://www.dhpayroll.co.uk/blog/tag/news-events) - [Payroll Research & Insights](https://www.dhpayroll.co.uk/blog/tag/payroll-research-insights) ## Recent Posts ![Men are twice as likely to believe equal pay has been achieved](https://www.dhpayroll.co.uk/hubfs/gender%20pay%20gap%20(4)%20(1).jpg) ### Men are twice as likely to believe equal pay has been achieved ![Neonatal Care Leave and Pay: A Guide for UK Employers](https://www.dhpayroll.co.uk/hubfs/pexels-prestige-by-nature-1116200106-21050251%20(1).jpg) ### Neonatal Care Leave and Pay: A Guide for UK Employers ![Young Adults 3x More Likely to Say Employees Treated Badly](https://www.dhpayroll.co.uk/hubfs/young%20britons%20at%20work%20(1)%20(1).jpg) ### Young Adults 3x More Likely to Say Employees Treated Badly ![dhpayroll ](https://www.dhpayroll.co.uk/hs-fs/hubfs/Child%20Theme%20July/footer_logo%20dh%20Payroll.png?width=207&height=56&name=footer_logo%20dh%20Payroll.png "dhpayroll ") Expert small business payroll provider with over 25+ years experience. 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