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
For 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.
For Pension 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:
Pension Salary Sacrifice
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:
Go to the employee’s profile: Payroll > Payroll Details
Under the Deductions section, add a Salary Sacrifice or Pension Salary Sacrifice item
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”)