Skip to main content

Set Up Salary Sacrifice (UK Payroll)

Learn how salary sacrifice deductions are set up, managed, and how they affect payslip calculations.

Updated over a month ago

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:

  1. Standard Salary Sacrifice – e.g. cycle-to-work, childcare, or other approved deductions

  2. Pension Salary Sacrifice – where the amount sacrificed is treated as an employer pension contribution rather than a personal deduction

Set Up Salary Sacrifice

For Salary Sacrifice:

  1. Navigate to: Payroll > Payroll Settings > Deduction Types

  2. Click ‘+ New’ to create a new deduction type.

  3. Set the Journal Account to Deductions (or the relevant account you use).

  4. Tick the relevant checkbox(es):

    • Salary Sacrifice for non-pension deductions

    • Pension Salary Sacrifice for pension-related deductions

  5. Click Update to save.

For Pension Salary Sacrifice:

  1. Navigate to: Payroll > Payroll Settings > Deduction Types

  2. Click ‘+ New’ to create a new deduction type.

  3. Set the Journal Account to Deductions (or the relevant account you use).

  4. Tick:

    • Pension Salary Sacrifice

  5. Click Update to save.

How to Apply Salary Sacrifice

Salary sacrifice deductions are applied automatically once set up correctly. You don’t need to manually add them during each pay run.

To Set Up for an Employee:

  1. Go to the employee’s profile: Payroll > Payroll Details

  2. Under the Deductions section, add a Salary Sacrifice or Pension Salary Sacrifice item

  3. Enter the deduction details (e.g., amount, frequency)

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”)

image

Deduction Types

Did this answer your question?