On 31 July 2025, Amie Wilson (Operations Director at Harold Sharp) and Paul Andrews (Omny Group), hosted a focussed roundtable on the benefits of Salary Exchange. This month’s Tax Tuesday distils the discussion into practical takeaways every employer should consider.
In an era of rising costs, increasing National Insurance (NI) contributions, and fierce competition for talent, business owners are under pressure to find strategies that work harder for both the company and their people. One tool that ticks both boxes, and which has been quietly available for decades, is Salary Exchange.
What is Salary Exchange?
Salary exchange (referred to by HMRC as salary sacrifice) is the process of an employee giving up a portion of their salary in return for non-cash benefits. These benefits might include cycle-to-work schemes, electric vehicle leases, or – most commonly – pension contributions.
Historically, salary exchange was seen to be preserved for larger companies, but accessibility has improved dramatically over the years. Now, organisations of all sizes can use it to create tangible financial savings for both employer and employee – savings that are becoming increasingly valuable as NI and minimum wage increases eat into budgets.
Despite being a “win-win” mechanism, adoption remains patchy. Many employers still overlook its potential, missing an opportunity to enhance their benefits package while improving their bottom line.
Why Salary Exchange matters now
Recent changes have made the case for salary exchange even stronger:
- Employer NI rate rose from 13.8% to 15% (April 2025).
- NIC threshold for employers fell from £9,100 to £5,000, expanding the taxable base.
- Minimum wage for over-21s rose to £12.21 (a 6.7% increase).
Taking a £40,000 salary as an example, these changes alone can cost an employer an extra £985 per year. For a full-time minimum wage worker, the combined NI and wage increases can reach nearly £2,500 per year.
Salary exchange offers a rare lever to offset these increases. It’s a tool that can help to manage business costs while putting more in employees’ pockets.
VIDEO 1: What is Salary Exchange and why does it matter now?
A real-world example: Kelly’s story
During the discussion, Amie and Paul shared Kelly’s story. Kelly runs a business and had been struggling with recruitment and retention.
On review, we found a number of common issues that are easily rectified once identified:
- Multiple pensions scattered across providers, never consolidated nor reviewed since auto-enrolment began.
- A scheme with limited investment choice and poor member access.
- Higher-rate taxpayers not claiming their full 20% extra tax relief – a common but costly oversight.
- Team members with families missing out on tax-free childcare.
By restructuring the pension scheme, introducing salary exchange, and offering confidential one-to-one consultations, Kelly’s team members gained:
- Better pension options with clear, accessible online tools.
- Tax relief awareness to boost their take-home pay.
- Childcare scheme information that many didn’t know existed.
As a business owner, Kelly benefited too – not just through NI savings, but by strengthening her employee value proposition and making her business more attractive to both current and prospective staff.
VIDEO 2: Kelly’s story
Pension in practice
To explore the benefits of Salary Exchange to employees, we compared traditional vs. salary exchange pension. It we use an employee earning £36,000 a year as an example:
In our Salary Exchange example, the pension investment stays the same but both the employee and employer enjoy immediate financial benefits with no reduction in pension value.
Salary exchange is more than just a cost-saving tactic. Done well, it can:
- Strengthen recruitment and retention through better take-home pay.
- Demonstrate proactive support for employees’ financial wellbeing.
- Provide a framework for broader benefits conversations (pensions often act as the gateway).
- Deliver measurable savings without reducing investment in employees’ futures
VIDEO 3: Pension in practice – crunching the numbers
How can we help?
In today’s climate, salary exchange isn’t just a “nice to have” – it provides a strategic advantage. By implementing it thoughtfully and communicating it clearly, business owners can turn a tax and NI headache into a mutual gain.
At Harold Sharp, our remit goes well beyond compliance. We believe in having open, strategic conversations about the broader issues affecting your business – including how to attract, retain and reward your people effectively.
That’s why we choose to partner with Omny Group for clients who could benefit from a fresh look at their benefits package. As a Harold Sharp client, Omny can undertake a no-cost audit of your current arrangements, providing a detailed report on where improvements can be made. This audit acts as an invaluable benchmarking tool, giving you clear, actionable insights to help your benefits strategy work harder for both your business and your employees.
Amie Wilson
Operations Director
Harold Sharp Limited
Paul Andrews
Director
Omny Group