How Salary Sacrifice Can Help Beat the Employer’s National Insurance Rise

National Insurance is a Tax, let’s see How Salary Sacrifice Saves Tax . From 6 April 2025, employers face an increase in their National Insurance costs. The employer’s NIC rate will rise from 13.8% to 15%. This change will affect both wages and benefits provided to employees.

In this blog, we explore how to reduce employer National Insurance contributions using a proven and legal strategy—salary sacrifice.

What Is Changing with Employer’s National Insurance?

Starting April 2025, you’ll pay more in National Insurance Contributions (NICs) for every employee on your payroll.

Here’s what’s increasing:

Employer’s NIC rate: From 13.8% to 15%
Class 1A NIC: Applies to taxable benefits
Class 1B NIC: Applies to PAYE Settlement Agreements

If you pay for your employees’ tax liabilities under PAYE Settlement Agreements, you’ll feel a double hit. You’ll pay the increased Class 1B NIC on both the benefit and the tax amount.

The result? Employing staff becomes more expensive.

What Is Salary Sacrifice?

Salary sacrifice is a tax-efficient arrangement between an employer and employee. Furthermore we can see How Salary Sacrifice Saves Tax

The employee agrees to give up part of their salary. In exchange, the employer provides a non-cash benefit.

For example:

Pension contributions
Cycle-to-work schemes
Other qualifying tax-free benefits

Salary sacrifice lowers the employee’s gross salary. This means both employer and employee pay less National Insurance.

Knowing how to reduce employer National Insurance contributions with salary sacrifice can significantly cut business costs.

How Does Salary Sacrifice Work?

Let’s break it down.

Instead of an employee paying directly into their pension from taxed income, they agree to reduce their salary. The employer then contributes the same amount into their pension.

Without Salary Sacrifice

Suppose an employee contributes £500 per month into their pension.

They get tax relief
But still pay National Insurance on full salary
Employer also pays NIC on full salary

The NIC cost in 2024/25:

Employee NIC: £40 per month (on income within earnings thresholds)
Employer NIC: £69 per month

In 2025/26:

Employer NIC: £75 per month

That’s an extra £72 per year per employee, just from the rate increase.

With Salary Sacrifice

The employee agrees to reduce gross pay by £500. The employer contributes that £500 into their pension.

Now:

Employee pays less NIC (saves £10–£40/month depending on income)
Employer saves £75/month from 2025/26
Pension contributions stay the same

Over 12 months, the employer saves £900 per employee. Multiply that across your workforce, and the savings grow fast. Hope you can see How Salary Sacrifice Saves Tax

This is a practical way of how to reduce employer National Insurance contributions while maintaining staff benefits.

Which Benefits Qualify for Salary Sacrifice?

The 2017 rule changes reduced the list of eligible benefits. However, some still qualify for salary sacrifice.

These include:

Pension contributions (occupational or personal schemes)
Employer-provided bikes and cycling safety gear (Cycle to Work Scheme)
Ultra-low emission vehicles (conditions apply)
Workplace nurseries

Each of these allows you to provide valuable benefits without increasing your NIC burden.

The Legal Requirements of Salary Sacrifice

To work correctly and deliver savings, a salary sacrifice agreement must follow HMRC rules.

Update the employee’s contract
The reduced salary must be documented and agreed in writing.
It must be a real reduction in pay
You can’t just say the salary is lower—it must be paid that way.
No automatic reversion
Employees must not be able to revert to their original salary at will.
The arrangement must be set up in advance
You can’t backdate it. Plan ahead to get the benefits.

Mistakes in setup could lead to HMRC challenging the arrangement. If that happens, both the tax and NIC savings could be lost.

Extra Benefits for Employees

It’s not just employers who gain from salary sacrifice. Employees benefit too.

Lower National Insurance contributions
Increased pension contributions
Access to tax-free benefits
Potential eligibility for child benefit or tax credit increases (due to lower gross income)

It’s a win-win when structured properly.

Use this method as part of your wider strategy for how to reduce employer National Insurance contributions and offer value to your team.

Why You Should Act Now

The increase in employer NICs may feel small, but it adds up quickly. If you have ten staff earning £30,000 per year, the additional NIC cost is around £3,200 annually.

Implementing a salary sacrifice scheme now helps you:

Avoid those added costs
Improve employee benefits
Boost financial wellbeing for your team

Furthermore, waiting until the last minute could mean missed savings and rushed decisions.

Budget Planning Made Easy

At I Hate Numbers, we help businesses prepare, plan, and profit.

We offer:

Payroll support
Tax planning
Salary sacrifice scheme setup
Financial planning tools like BudgetWhizz
Online calculators, including our payroll calculator
Check out our I Hate Number book

Don’t let rising NIC costs hurt your bottom line. Learn how to reduce employer National Insurance contributions the smart way.

Watch Our Recorded Webinar

We’ve covered this topic in greater detail in our FREE recorded webinar.

In the session, we discuss:

The NIC increase and what it means for you
Salary sacrifice strategies
Other practical cost-saving tips

Final Thoughts

The 2025 increase in employer National Insurance contributions is a challenge. But it’s also an opportunity.

By using salary sacrifice, you can :

Lower your employment costs
Maintain valuable staff benefits
Strengthen your team’s financial future

Now is the time to act.

At I Hate Numbers, we can help you implement these changes smoothly and correctly.

Plan it. Do it. Profit.

How Salary Sacrifice Saves Tax