Understanding Salary Exchange. Benefits and Considerations

What is Salary Exchange?  

Salary Exchange involves an agreement between an employee and employer.  

The employee’s employment contract is modified to indicate their decision to exchange a portion of future gross salary or bonuses for non-cash benefits, such as employer pension contributions. 

 Benefits for Employers and Employees:  

  1. Employers save on National Insurance (NI) contributions. 
  2. Employees save on both tax and NI contributions. 
  3. Employers can reinvest NIC savings in their business or employees’ pension plans. 
  4. Employees enjoy higher pension contributions or increased take-home pay, based on the arrangement. 
  5. Employees can boost retirement funds by reinvesting NIC savings into their pension plan.


Considerations for Salary Exchange:  

  1. Reduced life cover due to lower salary calculation for entitlement. 
  2. Limited mortgage borrowing capacity based on the lower salary. 
  3. Potential impact on state benefits like Statutory Maternity Pay and State Pension if National Insurance contributions decrease. 
  4. Reverting to the previous (pre-sacrifice) salary might require employer agreement and contract changes. 
  5. Reinvesting savings into employees’ pension plans can enhance benefits and encourage participation. 


Husky offers the option to distribute savings between the company and employees using specific percentages.  

Final Thoughts: Setting up salary exchange benefits both employers and employees. Besides tax advantages, it encourages saving, eco-friendly transportation choices, and healthier living.  

Pensions are already mandatory in the UK so it’s the most used Salary Exchange benefit as you are bringing savings to something that’s already implemented. Consider surveying employees to tailor choices to their needs. 


Husky turns workplace pensions into the employer's super power

Husky is the sole independent workplace pension platform in the UK. Husky’s team has invested in technology that integrates your pension, payroll, salary exchange and compliance into one system to improve the financial well-being and save your business time and money.