How can law firms prepare for the Autumn Budget’s salary sacrifice reform?

The Autumn Budget 2025 is set to affect how salary sacrifice pension arrangements will be treated in the future.

While salary sacrifice remains an efficient method of pension funding, the Government has announced the introduction of a £2,000 annual cap on the amount of salary that can benefit National Insurance (NI) savings.

Employees will still be able to sacrifice amounts above this threshold, but contributions exceeding £2,000 will no longer attract NI savings and will be treated as standard pension contributions.

Where parter and employee remuneration structures are complex, you must understand how these reforms will impact you.

How does salary sacrifice work?

Salary sacrifice is an arrangement under which an employee agrees to give up part of their gross salary or bonus in exchange for a non-cash benefit.

This is most commonly an employer pension contribution and reduces the employee’s taxable pay.

Under the current rules, salary sacrifice lowers both employee and employer NI liabilities.

Salary sacrifice has long been a popular and effective way for individuals to boost pension savings while improving their take-home pay.

For firms, it can also help reduce payroll costs and support competitive reward packages for partners and employees.

What changes are being introduced?

From April 2029, only the first £2,000 salary sacrificed each tax year will qualify for NI savings and any sacrificed amount above this limit will be submitted to NI contributions.

Employees who earn below £50,270 will pay 8 per cent on excess contributions while those above the threshold will pay NI at 2 per cent.

Employers will now be required to pay NI at 15 per cent on sacrificed amounts above £2,000 and Income Tax relief on pension contributions will continue to apply.

The cap will apply to both regular salary sacrifice and bonus sacrifice arrangements and bonus-to-pension strategies may no longer deliver the same financial benefits.

What does this mean for your firm and payroll teams?

These reforms are likely to affect your firm’s pension engagement, employee take-home pay and employer costs.

Firms that currently share NI savings with employees or offer greater pension contribution structures may need to reassess your current schemes.

While the changes are not set to come into effect until 2029, early preparation is crucial.

Law firms should begin by modelling the financial impact and review whether alternative contribution or reward structures could be more effective.

This could also allow for any opportunities to spot any inefficiencies or savings within your benefits programmes.

Clear communication with your employees can help them understand how the changes will affect their take-home pay and retirement planning and reduce the risk of disputes arising.

How can we help you prepare for the changes?

The Autumn Budget’s reforms on salary sacrifice and employee costs may be overwhelming.

However, with the right financial advice we can help assess your payroll implications and review your firm’s existing pension arrangements.

By planning early, you can stay informed on the ongoing reforms and continue to offer competitive pension benefits.

For further advice on your pension and payroll schemes, contact our legal accountants today.