What salary sacrifice actually is
The employee gives up part of their contractual salary and the employer pays the same amount into their pension instead. Because the money never becomes salary, it is not taxed as salary and no National Insurance is due on it — the employee’s or the employer’s. That is the whole mechanism. It is not a loophole and it does not need a scheme number; it needs a contract variation.
On a trades payroll this applies to anyone employed — apprentices, improvers, employed operatives and the office. It does not apply to subcontractors paid under CIS, who are not employees and have no salary to sacrifice.
The Employment Allowance kills the business case more often than anything else
The employer saving is 15% of whatever is sacrificed — but only if you are actually paying employer National Insurance. The Employment Allowance covers the first £10,500 of a qualifying employer’s secondary Class 1 bill, and a smaller payroll can sit entirely underneath it. If it does, the business saves nothing, whatever the sacrifice.
That does not make the scheme pointless. The employee saving is real and it is the larger of the two. It does mean the business case has to be honest about which one you are buying.
What changes in 2029
From 6 April 2029, only the first £2,000 sacrificed by an employee in a year keeps the National Insurance exemption. Anything above that will carry both employer and employee National Insurance as if it had been paid as salary. Income tax relief is not affected. A scheme set up now is not wasted — it has three tax years before the cap bites, and £2,000 a head stays exempt afterwards — but any modelling that runs past 2029 has to include it, and most of what you will read online does not.
Subcontractors are not in this at all
Salary sacrifice is a variation to an employment contract. A CIS subcontractor does not have one, so none of this reaches them — and if you find yourself trying to make it reach them, that is usually a sign the employment status question needs answering first.
The apprentice problem
An apprentice on the apprentice rate has almost no room here. Sacrifice cannot take pay below the National Minimum Wage, and that is a hard legal floor with no exceptions and no de minimis. On the apprentice and 18–20 rates the gap between the wage and the floor is often too small to sacrifice anything meaningful into.
Where it does work well is the employed operative in their thirties on a decent day rate, already over the primary threshold, who has never engaged with the workplace pension beyond the auto-enrolment minimum.
Before the first payroll run
This is a contractual change, so it needs a written variation the employee agrees to, and it has to be prospective — you cannot sacrifice pay already earned. Auto-enrolment duties continue to apply and the sacrificed amount still counts toward the minimum contribution. Get the payroll software set up for it before the first run rather than unpicking it afterwards.