What can salary sacrifice benefits do for you and your employees?

With the increase in National Insurance costs in the UK, understanding salary sacrifice benefits is more important than ever — especially if you’re looking to effectively manage your budgets while providing employees with engaging and personalized benefits. However, many employers and employees still don’t understand how to make the most of salary sacrifice benefits.

That’s why we recently hosted a webinar to explore how employers can enhance their salary sacrifice strategies. I sat down with Georgia Rule, Head of Total Reward at The AA, to discuss real-world insights, challenges, and the steps organizations can take to unlock the full potential of salary sacrifice.

Here are some highlights from our conversation…

Reducing the salary sacrifice knowledge gap

Despite salary sacrifice being a well-established tool for UK businesses, awareness amongst employees remains low; a fifth of UK workers have never even heard of salary sacrifice. The right salary sacrifice strategy can improve employee wellbeing — encouraging employees to make smarter decisions about their money, health and long-term savings — while generating savings for businesses, but employees need clear, accessible information to make informed choices.

Recently, The AA — the largest motoring organization in the UK — tackled this problem by renaming its scheme. Georgia Rule explained, “The word ‘sacrifice’ sounds like such a negative word, like you’re giving something up. So instead, we refer to it internally as salary exchange rather than a salary sacrifice scheme.”

This change in terminology has helped improve how employees engage with their benefits. The AA also harnessed a mobile-friendly benefits platform to ensure all employees could access their benefit options no matter where or how they’re working. This led to a 300% increase in salary sacrifice car scheme take-up and a 50% rise in overall benefit engagement.

Tackling minimum wage challenges

A central concern for many employers is ensuring that salary sacrifice doesn’t bring employees below the National Minimum Wage (NMW). In fact, a third of all fines for minimum wage underpayment were due to salary sacrifice miscalculations.

To mitigate this risk, The AA introduced a 10% buffer above the NMW to ensure long-term compliance, particularly for multi-year benefits like electric vehicles.

As Georgia shared, “As we’ve seen from the last two or three years now, we’ve had very large increases in the national minimum wage. So, we introduced a buffer last year of 10% on top of the national minimum wage. It’s [..] to protect the company and to make sure that that engagement journey for the employees is as smooth as it can be.”

The financial impact of salary sacrifice

Salary sacrifice benefits are not just advantageous for employees but also for businesses looking to mitigate rising costs. In 2024, we’ve seen a lot of customers driving significant savings. A financial services employer with 2,000 employees saved £1.19M, reflecting a 15% increase from 2023, and a professional services firm of the same size achieved £1.5M in savings, up 26% year-over-year. Another customer, despite not making any changes to their benefits scheme from 2023 to 2024, increased their NI savings by 97%.

For employees, while traditional salary sacrifice benefits like pensions and green car initiatives remain popular, new cost-saving offerings continue to emerge. For instance, bike rental programs now enable employees to save between 28% and 47% – a great option for employees who may not be able to afford a salary sacrifice car or a bike.

As financial wellbeing moves back to the top of the employee agenda this year, salary sacrifice is a powerful way to help employees stretch their pay further.

The best way to introduce salary sacrifice benefits

Based on her experience, Georgia recommends prioritizing flexibility in the salary sacrifice process: “With anytime benefits, employees can go in and choose the benefits they want, whenever they like.”

Allowing employees the flexibility to sign up for salary sacrifice benefits throughout the year (rather than only during a fixed enrolment window) encourages participation and corresponds to employees’ ways of working.

40% of employees believe employers should do more to make salary sacrifice easier to understand, underlining the importance of communication. As Georgia said, looking back on the introduction of salary sacrifice at The AA, “I think had we known what we know now in terms of the communication, and if we had access to the technology that we now have, I think I would have scoped out our communication strategy and plan upfront.”

Ready to expand your salary sacrifice offering?

As employer costs rise and financial wellbeing becomes a priority, salary sacrifice benefits are a powerful tool for both cost-saving and employee engagement. But it’s clear that there’s a huge education gap that needs to be addressed.

Even unions around the UK are warning employees that they are missing out on billions by not utilizing salary sacrifice benefits in the workplace.

By educating employees, streamlining access to benefits, and implementing smart communication strategies, employers can unlock significant value for their workforce and their business.

If you’re ready to learn more about salary sacrifice, access the full webinar recap here.