What's covered in this guide?:
Salary Sacrifice
Salary sacrifice is when an employee agrees to reduce their gross salary in return for a benefit, like:
Extra pension contributions
Cycle-to-work scheme
Other approved deductions
Why Use Salary Sacrifice?
Employees benefit by reducing their taxable income and National Insurance Contributions (NIC)
Employers can also reduce their employer NIC liability
There are two types of supported salary sacrifice:
Standard Salary Sacrifice – e.g. cycle-to-work, childcare, or other approved deductions
Pension Salary Sacrifice – where the amount sacrificed is treated as an employer pension contribution rather than a personal deduction
Set Up Salary Sacrifice
Standard Salary Sacrifice:
Navigate to: Payroll > Payroll Settings > Deduction Types
Click ‘+ New’ to create a new deduction type.
Set the Journal Account to Deductions (or the relevant account you use).
Tick the relevant checkbox(es):
Salary Sacrifice for non-pension deductions
Pension Salary Sacrifice for pension-related deductions
Click Update to save.
Pension Salary Sacrifice:
Go to the employee's profile: Profile > Pension
Open (or create) the employee's pension membership.
Set the membership's status to Salary Sacrifice.
Enter the contribution details as usual.
Once set to Salary Sacrifice, the employee's contribution is automatically treated as a pre-tax deduction, and all pension salary sacrifice calculations (tax, NIC, employer NIC savings).
Fixed Amount Contributions
In addition to percentage-based contributions, you can set up fixed amount pension contributions. This is supported for both:
Standard pension contributions, and
Pension salary sacrifice
Set a fixed amount at the provider level:
Navigate to the relevant Pension Provider settings.
Enter a fixed contribution amount.
Save your changes.
Any pension membership using that provider will automatically inherit the fixed amount, unless the membership has its own custom amount set, in which case the custom amount takes precedence.
Compliance Checks in the Pay Run
New checks have been added around pension sacrifice and contributions to help catch issues before a pay run is posted.
Warning (does not block posting)
Below auto-enrolment minimum - Flagged when contributions fall short of the 8% auto-enrolment minimum, measured on post-sacrifice qualifying earnings. This can only occur where a fixed amount sacrifice is in use. Entitled workers are exempt from this check.
Error (blocks pay run posting)
Pension sacrifice takes pay below National Minimum Wage - Triggered when pay passes the National Minimum Wage check with the sacrifice added back, but fails the check without it.
Pension sacrifice eats into statutory pay - Triggered when earnings cover the relevant statutory payment (SMP/SPP/SSP) floor with the sacrifice added back, but fail to cover it without the sacrifice.
If an error check is triggered, you'll need to adjust the employee's pension sacrifice or contribution setup before the pay run can be posted.
How to Apply Salary Sacrifice
Salary sacrifice deductions and pension memberships are applied automatically once set up correctly. You don't need to manually add them during each pay run.
Note: Once added, the deduction will appear automatically on all future payslips, including when:
You export a timesheet to payroll
You create a payslip manually
How It Appears on Payslips
When a salary sacrifice is applied:
Gross Pay is reduced by the sacrifice amount
The payslip shows the Adjusted Gross Pay (after the sacrifice)
Help text explains the adjustment clearly
The deduction appears in the Deductions section, showing:
The name of the deduction
The category (e.g., “Pension” or “Other”)
