Salary sacrifice calculator (UK)
What pension salary sacrifice saves the employer, what it costs the employee in take-home pay, and what the £2,000 limit arriving on 6 April 2029 does to both.
The arrangement
Figures use 2026/27 rates: employee National Insurance at 8% between £12,570 and £50,270 and 2% above, employer National Insurance at 15% above £5,000, and Income Tax at 20%, 40% and 45% with the personal allowance tapering above £100,000.
Salary sacrifice saves the employer 15% of everything sacrificed, and the employee 8% or 2%, because the money never becomes earnings. It is the only part of a pension arrangement that puts cash back on the employer's side of the ledger. From 6 April 2029 only the first £2,000 a year keeps that exemption, which turns a standing saving into one worth modelling now rather than in 2028.
How does pension salary sacrifice work?
The employee gives up an agreed amount of contractual pay and the employer pays that amount into the pension instead. Because the pay is never received, it is not earnings, so neither side pays National Insurance on it and no Income Tax is deducted. HMRC's own condition is that the arrangement is real: its guidance describes it as "an agreement to reduce an employee's entitlement to cash pay, usually in return for a non-cash benefit" and says "you must alter their contract with each change". A payroll line item with no contract variation behind it is not a salary sacrifice.
Pension contributions are one of a short list of benefits that carry no Income Tax or National Insurance charge under these arrangements, alongside employer-provided pensions advice, workplace nurseries, cycles and cycling safety equipment, and childcare vouchers for arrangements that started on or before 4 October 2018.
What the employer actually saves
Employer National Insurance is 15% of earnings above a secondary threshold of £5,000 a year, so every pound sacrificed is a pound that never attracts it. The saving scales with headcount and never stops:
| Sacrificed each | 10 people | 25 people | 50 people | 100 people |
|---|---|---|---|---|
| £2,000 | £3,000 | £7,500 | £15,000 | £30,000 |
| £4,000 | £6,000 | £15,000 | £30,000 | £60,000 |
| £6,000 | £9,000 | £22,500 | £45,000 | £90,000 |
Some employers keep the saving, some pass all or part of it into the pension as well. Either is defensible; what matters is saying which, in writing, before anyone joins the scheme.
What changes on 6 April 2029
At the Autumn Budget on 26 November 2025 the government announced a limit on the National Insurance exemption. From 6 April 2029, only the first £2,000 sacrificed into a pension in a tax year keeps it. Above that, the policy paper confirms that "Class 1 primary and secondary National Insurance contributions" apply, while "the Income Tax relief on employee and employer pension contributions ... remain unchanged".
The scale, in the government's own figures: 7.7 million employees contribute this way, 3.3 million of them sacrifice more than £2,000, and 56% are fully protected by the threshold. The average additional employee liability is put at £84 in the first year. The detail of how the limit will operate is left to secondary legislation, so the mechanics are not final; the direction is.
Two practical consequences. Arrangements are contractual, so a change to how much can usefully be sacrificed is a contract conversation rather than a payroll setting. And the employer side of the bill lands on the same budget line as every other employment cost, which is why it belongs in a 2029 forecast now.
Where it goes wrong
- The minimum wage floor. Sacrifice "must not reduce an employee's cash earnings below the National Minimum Wage rates". It is an absolute floor, and unlike most things in payroll there is no grace for a near miss. The calculator above flags it; the salaried minimum wage checker goes further for annualised pay.
- Statutory pay. Statutory payments are calculated on post-sacrifice earnings. HMRC states plainly that "if a salary sacrifice arrangement reduces an employee's average weekly earnings below the lower earnings limit, you don't have to make any statutory payments to them". For a lower-paid employee planning a family this can cost far more than the sacrifice saves, which is why many schemes suspend sacrifice during maternity leave or use notional pay.
- Mortgage and reference figures. The salary on a reference is the reduced one. It is worth telling people before they apply, not after.
- Treating it as a payroll switch. No contract variation, no sacrifice. HMRC "will not comment on a proposed salary sacrifice arrangement before it has been put in place", so there is nobody to ask afterwards.
Frequently asked questions
How much does salary sacrifice save an employer?
15% of whatever is sacrificed, because the sacrificed pay never becomes earnings and so never attracts employer National Insurance. On £4,000 sacrificed that is £600 a year, per employee, every year. It is the one payroll saving that costs nothing to set up beyond a contract variation, which is why it is usually the first thing a finance director asks about.
What is the £2,000 salary sacrifice cap from April 2029?
From 6 April 2029 only the first £2,000 sacrificed into a pension in a tax year keeps its National Insurance exemption. Anything above that attracts Class 1 primary and secondary contributions, so both the employee and the employer start paying. Income Tax relief is not affected. HMRC estimates 3.3 million of the 7.7 million employees using salary sacrifice contribute more than £2,000, and puts the average additional employee liability at £84 in the first year.
Does salary sacrifice reduce statutory maternity or sick pay?
It can, and this is the trap worth pricing before you offer it. Statutory payments are worked out on average weekly earnings after the sacrifice, so a sacrifice that pushes earnings below the lower earnings limit removes the entitlement altogether. Many employers either pause sacrifice during maternity leave or calculate pension contributions on notional pre-sacrifice pay so nobody is worse off.
Is the tax relief the real benefit of salary sacrifice?
No, and this is the point most comparisons get wrong. An employee paying into a pension from taxed income gets Income Tax relief anyway, through net pay or relief at source. What salary sacrifice adds on top is the National Insurance: 8% or 2% for the employee and 15% for the employer. The exception is the band between £100,000 and £125,140, where sacrifice also restores the tapered personal allowance and the effective relief reaches 60%.
Sources
Checked against the primary source on 14 September 2026. Every rate and rule on this page comes from one of these:
- HMRC: rates and thresholds for employers 2026 to 2027 - National Insurance rates and thresholds, and the Income Tax bands
- HMRC: salary sacrifice for employers - the contract requirement, the exempt benefits, the minimum wage floor and the effect on statutory payments
- HM Treasury and HMRC: salary sacrifice reform for pension contributions - the £2,000 limit from 6 April 2029 and the affected population
- gov.uk: National Minimum Wage and National Living Wage rates - the hourly floor the calculator checks against
Worth reading alongside
This calculator applies published rates and shows its working, but it cannot see your contracts, your pension scheme rules or anything unusual about an individual's pay. The 2029 limit will be set out in secondary legislation that does not yet exist. Treat the figures as a starting point and take advice before changing anyone's contract.
Benefits your people can actually find
CoDash keeps the pension, the provider and who is enrolled in one register, with eligibility rules and the documents attached - so a question about salary sacrifice has an answer that does not start with an email to HR.