Salary Sacrifice
A salary sacrifice happens when an employee gives up the right to part of their cash remuneration due under the contract of employment (i.e. their salary) in return for the employer's agreement to provide some sort of non-cash benefit.
There is no merit in making a salary sacrifice if the alternative benefit provided is itself taxable, but there are positive financial implications if the benefit is free of tax and/or National Insurance Contributions (NICs).
Salary sacrifice can be used for benefits such as, childcare, mobile phones and bikes for work, but the greatest potential saving can be made in connection with pension contributions. It involves employees agreeing to take a lower salary in return for a pension contribution. Because the salary is lower, NIC's payable by both employer and employee are reduced and both parties can also put some, or all, of what they have saved in NIC's towards making additional pension contributions.