Help employees get an extra slice: How salary sacrifice works

Salary sacrifice benefits are one of the most effective ways to help employees get more from their payslip. Same dough, more bread.

But "salary sacrifice" isn't the most intuitive term. And it can be hard for employees to work out exactly how much they stand to save, or what the implications are for their other pay and benefits. This guide explains how it works, what to consider, and answers the questions HR teams and employees ask most often.

How salary sacrifice works

Think of your monthly salary as a loaf. Normally, the taxman takes a slice before you see any of it. Salary sacrifice lets you pay for certain things from that loaf before it's taxed — so you keep more of what you earn, without needing a pay rise.

Gogeta helps employees do exactly that, through two salary sacrifice benefits: a workplace nursery partnership and a cycle-to-work scheme.

A real example: workplace nursery

Take an employee earning £55,000 a year with a nursery bill of £1,500 a month.

Without salary sacrifice, they pay that nursery bill from their take-home pay, after tax and National Insurance. After nursery fees, they're left with roughly £2,038 for everything else that month.

With Gogeta Nursery, the same £1,500 nursery bill is paid before tax. After fees, they're left with roughly £2,378 for everything else. That's a saving of £340 every month, or around £4,080 a year.

The nursery bill doesn't change. The saving comes entirely from the tax and National Insurance they no longer pay on that portion of their salary.

Which benefits qualify?

HMRC's salary sacrifice guidance sets out the benefits that are exempt from tax and National Insurance under a salary sacrifice arrangement. The main ones are:

• Payments into pension schemes
• Workplace nurseries
• Bicycles and cycling safety equipment (cycle to work)
• Low-emission cars (taxed at reduced rates rather than fully exempt)
• Employer-provided pensions advice

Workplace nursery is one of the few benefits with no cap on the saving. Unlike the government's Tax-Free Childcare scheme, which is limited to £2,000 per child per year, the workplace nursery exemption covers the full nursery cost put through salary sacrifice.

What to know before you start

There is no single drawback that applies to everyone, but salary sacrifice does have a few practical implications worth knowing about.

Salary sacrifice is a contractual arrangement. The GOV.UK guidance for employers makes clear that it works by changing the terms of an employee's employment contract. The employee agrees to receive a lower cash salary in exchange for a non-cash benefit. That's the mechanism, and it has a few practical implications worth knowing about.

National Minimum Wage

Salary sacrifice cannot reduce an employee's cash earnings below the National Minimum Wage. Employers must put procedures in place to cap deductions and ensure NMW rates are maintained.

For most employees using Gogeta Nursery, this won't be an issue. But it's worth checking, particularly for part-time employees or those closer to the NMW threshold.

Compliance

Not all salary sacrifice benefits are created equal. For workplace nursery in particular, the tax exemption depends on the arrangement meeting the conditions set out in section 318 of ITEPA 2003. Those conditions require a genuine employer partnership with the nursery, including real financial and management involvement.

Working with a provider who takes compliance seriously matters. Gogeta's model is designed to meet all four statutory conditions and has been independently validated by leading tax counsel.

How salary sacrifice affects National Insurance

This is where the numbers get interesting for employers.

Because salary sacrifice reduces an employee's cash pay, both the employee and the employer pay National Insurance contributions on a smaller amount. For employees, that reduction in NIC is part of the overall saving. For employers, it's a direct saving on payroll costs.

With Gogeta Nursery, the employer also makes an ongoing financial contribution to the nursery partner, which supports the nursery's stability.

The numbers in practice:

The employer's NIC saving depends on the amounts involved and the employer's specific circumstances.

Will salary sacrifice affect pension contributions?

Possibly, and it's one of the most important things for employees to check before signing up.

Because salary sacrifice reduces cash pay, it can affect how pension contributions are calculated — both the employee's and the employer's. The GOV.UK guidance is clear: the employer decides how pension contributions are calculated, and they can be based on either the original (notional) salary or the new reduced cash salary.

The two approaches:

• Based on reduced salary: Pension contributions are calculated on the lower post-sacrifice salary. The employee saves on tax and NIC now, but their pension pot may grow more slowly.
• Based on notional salary: Many employers choose to use the original salary figure for pension calculations, so employees aren't disadvantaged by participating. This is the more employee-friendly approach.

The practical advice: check with your HR team or pension provider before signing up. The answer depends on your employer's specific pension scheme rules. If contributions are based on reduced salary, weigh the immediate nursery saving against the long-term pension impact — for most employees with significant nursery bills, the monthly saving is substantial enough to make it worthwhile, but it's a decision to make with full information.

Gogeta's portal makes the salary sacrifice amount visible each month, so employees always know exactly what's being deducted and can factor that into any pension calculations.

How salary sacrifice works during leave and statutory pay periods

This is one of the most common questions from employees considering a workplace nursery arrangement, and the answer requires care.

HMRC's guidance is direct: salary sacrifice can affect the amount of statutory pay an employee receives, and in some cases can cause employees to lose their entitlement altogether.

Statutory Maternity Pay and Maternity Allowance

Statutory Maternity Pay (SMP) is calculated based on average weekly earnings. If salary sacrifice reduces those average weekly earnings below the lower earnings limit, an employee may receive less SMP than they would otherwise — or lose entitlement to it entirely.

The key question: does the salary sacrifice reduce average weekly earnings below the lower earnings limit (£129 per week in 2026/27)? If it does, entitlement to SMP is affected.

For most employees using Gogeta Nursery, average weekly earnings will remain comfortably above this threshold. But it's worth confirming, particularly for lower-earning employees or those who sacrifice a significant portion of their salary.

Statutory Sick Pay

Statutory Sick Pay (SSP) works differently. Since April 2026 there's no lower earnings limit for SSP: it's paid at £123.25 a week or 80% of average weekly earnings, whichever is lower. So salary sacrifice can reduce the amount of SSP a lower earner gets, but it won't remove their entitlement.

What happens during maternity or paternity leave?

Salary sacrifice arrangements can continue during maternity or paternity leave, but only while there is enough pay (including any Statutory Maternity Pay or enhanced pay) to cover the deduction. If there isn't, the arrangement is paused.

With Gogeta Nursery, employees can pause and restart their salary sacrifice arrangement. If an employee goes on maternity leave and their pay isn't enough to cover the deduction, the sacrifice pauses — and resumes when they return.

What about unpaid leave?

If an employee takes unpaid leave, there's no cash pay from which to deduct the salary sacrifice. Payments under the workplace nursery arrangement would pause for that period.

In practice, this means the nursery bill for that period would need to be paid directly by the employee. Gogeta works with employers and employees to manage these transitions clearly, so there are no surprises.

How to set it up right

Salary sacrifice is straightforward when it's set up correctly. Most problems come from one of four places.

1. The arrangement isn't properly documented

Salary sacrifice requires a formal change to the employee's employment contract. If the contract isn't updated to reflect the new cash salary and the non-cash benefit, the arrangement isn't valid. HMRC expects to see evidence of the variation — payslips before and after, and the updated contract terms.

2. The benefit doesn't meet the exemption conditions

For workplace nursery, the tax exemption applies only when the conditions in s.318 ITEPA 2003 are met. A provider who doesn't meet those conditions in substance — particularly the financing and managing requirements — puts the exemption at risk. That risk falls on the employer.

This is why provider due diligence matters. The right questions to ask are: what does the employer's financial contribution to the nursery actually consist of? What does management involvement look like in practice? Can you see the records?

3. Payroll isn't set up correctly

Salary sacrifice runs through payroll. If payroll isn't updated to reflect the new gross salary figure, employees will be taxed on the wrong amount. And if the deduction isn't aligned to the nursery billing cycle, the amounts won't match up month to month.

Gogeta provides consolidated payroll reports aligned to cut-off dates, so HR and payroll teams have the numbers they need, when they need them.

4. Employees aren't told about the statutory pay implications

Employees who are planning to take maternity leave, or who are close to the NMW threshold, need to understand how salary sacrifice will affect their statutory entitlements before they sign up. Getting this wrong isn't a compliance failure — but it damages trust and creates avoidable complications.

The fix is simple: clear communication at sign-up, and a process for reviewing the arrangement when an employee's circumstances change.

How much admin is involved for HR teams?

Not much, if the benefit is designed well.

The reason salary sacrifice benefits sometimes get a reputation for complexity is that they do touch payroll — and payroll is sensitive. But the admin burden depends almost entirely on how the provider has built their system.

With Gogeta, here's what HR teams actually need to do:

• Communicate the benefit to employees (Gogeta provides materials to help with this)
• Review and approve applications in the online employer portal
• Update payroll according to the salary sacrifice agreement, using the consolidated payroll reports Gogeta provides

That's it. Gogeta handles the employee onboarding, the nursery relationships, the monthly billing, and the payroll reporting. HR teams don't need to manage nursery invoices, chase payments, or track individual employee arrangements manually.

For a business with 100 to 1,000 employees, the volume of applications can vary — but the process doesn't. Each application follows the same steps, and the portal makes approvals straightforward.

The payroll planning piece: salary sacrifice amounts for Gogeta Nursery can vary month to month, because they're based on actual nursery bills. Gogeta aligns its reporting to payroll cut-off dates and provides clear, consolidated figures so payroll teams can process deductions without having to reconcile individual invoices.

Ready to get started?

Gogeta offers salary sacrifice benefits including workplace nursery and cycle to work. Both are designed to be straightforward for HR teams to run and genuinely valuable for employees.

Get in touch to talk through how it works for your business, or explore the Gogeta Nursery employee page if you're an employee wanting to understand your savings.

This guide is general information, not tax or legal advice. The effects of salary sacrifice depend on individual circumstances. Employees should check with their HR team or an independent adviser before making decisions based on this guide.

Summary

If you're weighing up salary sacrifice benefits, workplace nursery is the one that tends to matter most to working parents. It can deliver meaningful savings, it is straightforward to run when payroll is set up properly, and it needs a bit of care around pension contributions, statutory pay, and unpaid leave.

For HR teams, the key is simple: get the paperwork right, keep payroll aligned, and make sure employees understand the impact before they join. That is where most of the avoidable problems come from.