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View full libraryThis Salary Sacrifice Policy explains how [Company] operates salary sacrifice arrangements and the principles that apply when employees exchange part of their contractual cash salary for an eligible non-cash benefit. It sets out eligibility, applications, contractual changes, payroll treatment, National Minimum Wage considerations and what happens when circumstances change.
Use this policy to:
If you are reviewing your pay and benefits arrangements, these pay and benefits policy templates give you a practical set of policies covering review, decisions, communication, implementation and administration.
This template brings together the key information, sections and considerations you need to create a clear, comprehensive and professional HR document. Preview the document below.
1 Overview
1.1 [Company] may operate salary sacrifice arrangements that allow eligible employees to exchange part of their future contractual cash salary for an agreed non-cash benefit.
1.2 A salary sacrifice arrangement involves a genuine change to an employee's contractual entitlement to cash remuneration. It is not simply a deduction from salary.
1.3 The tax and National Insurance treatment of salary sacrifice depends on the benefit involved. Employees should not assume that participating in a salary sacrifice arrangement will automatically result in a tax or National Insurance saving.
1.4 This policy explains the general principles that apply to salary sacrifice arrangements operated by [Company]. Individual schemes may also have separate terms and conditions which employees must comply with.
2 Scope
2.1 This policy applies to employees who participate, or wish to participate, in a salary sacrifice arrangement operated or approved by [Company].
2.2 The benefits available through salary sacrifice will depend on the schemes that [Company] has chosen to operate and the applicable legislation.
2.3 Nothing in this policy creates an entitlement to a particular salary sacrifice benefit.
3 General principles
3.1 What is salary sacrifice?
3.1.1 Salary sacrifice is an arrangement under which an employee gives up an entitlement to future cash remuneration in return for an agreed non-cash benefit.
3.1.2 For an arrangement to operate as salary sacrifice, the employee's contractual entitlement to the relevant cash salary must be changed before the relevant remuneration becomes payable.
3.1.3 Salary sacrifice should not be confused with an ordinary deduction from salary. The legal and tax treatment depends on the actual arrangement rather than the label applied to it.
3.2 Benefits available
3.2.1 [Company] may offer salary sacrifice arrangements for benefits such as:
3.2.2 The availability and tax treatment of each benefit will depend on the relevant legislation and scheme rules.
3.3 Eligibility
3.3.1 Eligibility for a salary sacrifice arrangement will depend on the requirements of the particular scheme.
[Company] may set reasonable eligibility criteria, including minimum service requirements where appropriate
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This policy provides a practical framework for operating salary sacrifice arrangements consistently. Salary sacrifice involves an employee giving up an entitlement to part of their future cash remuneration in return for an agreed non-cash benefit. The tax treatment depends on the particular benefit and the applicable legislation, so not every salary sacrifice arrangement will provide a tax or National Insurance saving.
A genuine salary sacrifice arrangement involves a change to the employee's contractual entitlement to cash pay. The employee must agree to the change before the revised arrangement takes effect. The policy explains how requests are made and how the resulting contractual and payroll changes are recorded.
The benefits available through salary sacrifice will depend on the schemes operated by the organisation. These may include pension contributions, cycle to work arrangements or other benefits where the relevant tax rules permit salary sacrifice treatment.
Salary sacrifice can affect an employee's contractual salary, taxable pay, National Insurance, pension arrangements and other calculations. The organisation will explain the relevant scheme arrangements, but employees remain responsible for considering how participation may affect their individual circumstances.
Salary sacrifice arrangements are normally subject to a defined period and may not always be capable of being changed or cancelled immediately. The organisation will set out the rules applicable to each scheme and will deal with changes caused by life events, absence, changes in employment or leaving the organisation in accordance with the relevant scheme terms.
HR and payroll will maintain appropriate records of salary sacrifice arrangements and ensure agreed changes are reflected in payroll and contractual documentation. Arrangements will be reviewed where legislation, tax treatment or scheme rules change.
Use these best practice actions, recommended timescales and process stages to understand when and how the Salary sacrifice policy should be used, helping ensure each step is handled consistently and appropriately documented.
Understand the common mistakes to avoid when using this HR template, helping you reduce risk, prevent unnecessary costs and ensure the process is handled correctly.
Salary sacrifice is an arrangement where an employee gives up part of their future contractual cash salary in return for an agreed non-cash benefit. It requires a genuine contractual change and is different from simply deducting an amount from an employee's normal salary.
No. The tax and National Insurance treatment depends on the particular benefit. Since 2017, the tax advantages for many benefits provided through salary sacrifice have largely been withdrawn. Certain benefits, including registered pension contributions, have specific treatment.
Not necessarily. Eligibility depends on the particular scheme, the employee's circumstances and the relevant benefit. [Company] may also need to restrict or cap participation where required by law, scheme rules or payroll requirements.
Not necessarily. The ability to change or end an arrangement depends on the terms of the particular scheme. Some schemes may allow changes at defined points or following specified lifestyle events, while others may operate for a fixed period.
No. Employers must ensure that salary sacrifice does not reduce an employee's cash earnings below the applicable National Minimum Wage. Payroll should check the position before approving or changing an arrangement.
HRDocBox templates provide a structured starting point designed for UK employers, combining practical HR wording with relevant employment law, HMRC guidance and workplace best practice. AI can generate wording, but a structured template helps ensure the important contractual, payroll and compliance considerations are addressed.
How this content is developed and reviewed
The Salary sacrifice policy template is developed using a practical HR methodology that considers current UK employment legislation, ACAS guidance, CIPD good practice and the real-world HR process it supports. Templates and supporting information are regularly reviewed and updated, with additional reviews triggered by significant changes to legislation, guidance or established HR practice, helping ensure each document remains practical, relevant and suitable for UK employers.
Darryl Horn, Chartered HR Director
Darryl is a Chartered HR professional with over 25 years' experience in senior HR and employee relations roles.
He has extensive practical experience of managing pay and benefits HR processes and founded hrdocbox to provide businesses with practical, professionally developed HR resources grounded in UK employment law and best practice.
HRDocBox has been creating practical UK HR documents since 2009.
"Darryl provides support and advice with excellent judgement, and has a strong understanding of people, policies and UK employment legislation."
"He is someone I trust; consistent, dependable, and committed to doing things properly."
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