Create salary sacrifice payments and read how salary sacrifice affects reports and payslips.
Cause
Resolution
What is salary sacrifice?
Salary sacrifice is an arrangement between an employee and their employer.
For pensions, the employee will reduce their pay by the pension contribution amount.
In return, the employer agrees to pay the total pension contributions.
Using salary sacrifice means the employee pays less tax. Both the employee and employer pay less National Insurance.
For example:
Alex has a salary of £30,000 a year and contributes 5% into their pension. Alex's employer contributes 3%.
This means Alex contributes £1,500 and their employer contributes £900.
This is a total contribution of £2,400.
Alex agrees to sacrifice £1,500 of their salary, which reduces to £28,500. Their employer pays the sacrificed amount into the pension. They also pay their employer contribution.
Alex then pays tax and National Insurance on their reduced salary of £28,500, saving money on both.
How to set up a salary sacrifice pension scheme
You set up your salary sacrifice pension scheme in the same way as any pension scheme.
NOTE:You can't update an existing pension plan or group to be a salary sacrifice scheme. You need to create a new one.
You set your pension to be salary sacrifice when you add your Group to the pension scheme.
Pension group added
Select a contribution type of Salary Sacrifice when adding a new pension or group to the payroll.
Enter the employee and employer percentage contributions. NOTE:You need to do this even if you want to change to fixed-value pension contributions later.
Enter the required values or use an employer contribution of 3%.
Enter the required values or use an employee contribution of 5%.
Continue the steps and select Save.
Select Save on the main pension page.
Use fixed amount contributions
Fixed amount contributions are set up in your pay run.
Run payroll to the Edit pay stage.
Select the employee.
Select the Manage Enrolment drop-down menu.
Select Manage Contributions.
Change the contribution to Fixed.
Enter the required values.
Payroll will remember these changes going forward.
Create a salary sacrifice payment
You need to specify if a payment is subject to the salary sacrifice reduction.
NOTE:You cannot edit a payment already used in a completed pay run to select the Salary Sacrifice checkbox. You'll need to create a new one.
When you create the taxable and NIable payment, select the Salary Sacrifice checkbox.
The check box is only available if a salary sacrifice pension is already set up.
In line with salary sacrifice guidance, sacrificed amounts don't show as a deduction. On the payslips, it shows as a negative payment.
The total pension contributions show as employer pension on the payslip. No value shows for employee pension.
If you need help with payslips, read our article Payslips.
On the payroll detailed report, the total pension contributions show as employer contributions.
Refer to our detailed report guide below:
Section 1
The gross pay for the employee is here, minus the salary sacrifice amount.
Section 2
The total salary sacrifice deduction is here.
Section 4
The employer contribution is here. This includes the salary sacrifice figure. The employer paid this on the employee's behalf.
Section 7
There are no employee contributions to date. The employee has sacrificed part of their salary for their pension. Instead, this shows as salary sacrifice in the Pension Contributions Report.
The pension contributions reports have a salary sacrifice column. This is to show the amount sacrificed by each employee. The total pension contributions show as employer contributions.
NOTE: 
Watch how to process salary sacrifice pensions