Can a Small Business Offer Salary Sacrifice or Is It Only for Big Companies in the UK?

Salary sacrifice is often associated with large corporates offering generous benefit packages. But is it really out of reach for small businesses? The short answer is no.

In the UK, salary sacrifice schemes are just as accessible to SMEs as they are to multinational employers — and in many cases, they can deliver even greater relative value.

So how does salary sacrifice work for small businesses, and what do employers need to consider?

What Is Salary Sacrifice?

Salary sacrifice is an arrangement between an employer and an employee where the employee agrees to give up part of their gross salary in exchange for a non-cash benefit. Because the salary is reduced before tax and National Insurance are calculated, both the employee and the employer can make savings.

Common salary sacrifice benefits include:

• Pension contributions
• Electric vehicles (EVs) via salary sacrifice car schemes
• Cycle to Work schemes
• Workplace technology
• Childcare (legacy schemes only)

Is Salary Sacrifice Only for Large Companies?

No. There is no minimum company size requirement in UK legislation. A business with two employees can legally offer salary sacrifice just as easily as one with two thousand.

The perception that salary sacrifice is “for big business” usually comes from three misconceptions:

Administration must be complex: Modern providers handle most of the administration, payroll integration and HMRC compliance.

It’s too expensive to set up: Many schemes are cost-neutral for employers, and some even reduce employer National Insurance costs.

Employees won’t be interested: In reality, benefits like pensions, EVs and Cycle to Work schemes are highly valued, especially as the cost of living remains high.

If you're considering an electric car scheme for the first time you'll find our Salary Sacrifice overview really useful - details of what it is ... what it isn't and downloadable guides for further information. 

Why Salary Sacrifice Makes Sense for Small Businesses

For SMEs, salary sacrifice can be a powerful tool rather than a burden.

It Helps Attract and Retain Talent:

Small businesses often can’t compete with large employers on headline salary alone. Offering tax-efficient benefits can significantly improve the overall remuneration package without increasing payroll costs.

Employer National Insurance Savings:

When an employee reduces their gross salary, the employer pays less National Insurance. These savings can be retained or used to help fund the benefit itself.

Cost-Neutral or Low Risk:

Many salary sacrifice schemes — particularly pensions and EV schemes — are designed to be cost-neutral. Reputable providers also offer protection against employee life events such as redundancy or long-term sickness.

Supports Employee Wellbeing and Sustainability:

Whether it’s helping staff save for retirement, cycle to work, or drive an electric vehicle, salary sacrifice aligns well with wellbeing and ESG objectives — even for micro businesses.

What Are the Rules for Small Businesses?

While size doesn’t matter, compliance does. Employers must ensure:

• Salary sacrifice is a formal contractual change, not an informal agreement.
• The employee’s cash salary does not fall below the National Minimum or Living Wage.
• Schemes comply with HMRC rules (especially post-2017 Optional Remuneration rules).
• Payroll systems are updated correctly.

A good provider will guide employers through all of this.

Which Salary Sacrifice Schemes Are Most Popular with SME’s?

Some schemes are particularly well suited to smaller businesses:

Pension salary sacrifice: simple to implement and widely used.

Cycle to Work: low risk and easy to administer.

EV salary sacrifice: increasingly popular, especially due to favourable Benefit-in-Kind rates.

These benefits can often be introduced individually, rather than as part of a large, complex benefits platform.

Is There Any Reason a Small Business Shouldn’t Offer Salary Sacrifice?

Salary sacrifice may not be suitable for every employee, particularly those close to minimum wage, and it does require some planning. However, these challenges are not linked to company size. They are practical considerations that can be managed with the right advice.

Final Thoughts

Salary sacrifice is not reserved for big companies with HR departments and deep pockets. In the UK, small businesses can — and increasingly do — use salary sacrifice to reduce costs, improve employee benefits and stay competitive in a tight labour market.

For many SMEs, the real question is no longer “Can we offer salary sacrifice?” but “Why wouldn’t we?” 

A salary sacrifice scheme won't be right for every business - a quick thirty minute conversation will be enough to decide whether it's a "no - not now" or "this could work for us - let's investigate further" - if a scheme can work the benefits to the business are significant - that has to be worth half an hour to find out ? 

You may also find these articles useful: 

• More than a benefit: Why EV Salary Sacrifice is more than just an employee perk 

• SME benefits: How does a small business benefit from offering EV Salary Sacrifice  

• Low uptake: Got a scheme already? ... how to understand and fix low emloyee uptake

• BIK Changes: Is salary sacrifice still worth it with the upcoming rise in BIK rates for EVs?