What salary sacrifice actually is
The employee gives up part of their contractual salary and the employer pays the same amount into their pension instead. Because the money never becomes salary, it is not taxed as salary and no National Insurance is due on it — the employee’s or the employer’s. That is the whole mechanism. It is not a loophole and it does not need a scheme number; it needs a contract variation.
In a law firm this covers employed solicitors, paralegals, legal secretaries and the support team. It is often most valuable to the associate sitting between £100,000 and £125,140, where the personal allowance taper makes every pound sacrificed worth 60p in income tax alone.
The Employment Allowance kills the business case more often than anything else
The employer saving is 15% of whatever is sacrificed — but only if you are actually paying employer National Insurance. The Employment Allowance covers the first £10,500 of a qualifying employer’s secondary Class 1 bill, and a smaller payroll can sit entirely underneath it. If it does, the business saves nothing, whatever the sacrifice.
That does not make the scheme pointless. The employee saving is real and it is the larger of the two. It does mean the business case has to be honest about which one you are buying.
What changes in 2029
From 6 April 2029, only the first £2,000 sacrificed by an employee in a year keeps the National Insurance exemption. Anything above that will carry both employer and employee National Insurance as if it had been paid as salary. Income tax relief is not affected. A scheme set up now is not wasted — it has three tax years before the cap bites, and £2,000 a head stays exempt afterwards — but any modelling that runs past 2029 has to include it, and most of what you will read online does not.
Partners and LLP members are not employees
This is an employment arrangement, so it reaches employed fee earners and staff. An equity partner in a partnership, or a member of an LLP, has no salary to sacrifice — they draw profit share, and pension funding for them is a personal contribution with relief claimed through self assessment, which is a different calculation entirely.
Fixed-share members are the case to check rather than assume. Where all three salaried members conditions in ITTOIA 2005 sections 863A to 863G are met the member is taxed as an employee, which changes the answer — and firms rarely re-run those conditions after the year they were first considered.
The 60% band is the real argument
Between £100,000 and £125,140 the personal allowance is withdrawn at £1 for every £2 of income, so the marginal income tax rate is 60%. Add employee National Insurance and the employer saving and a pound sacrificed there does far more work than the same pound sacrificed by someone on £45,000. The calculator applies the taper, so put a real associate salary in and look at the relief-per-pound line.
Before the first payroll run
This is a contractual change, so it needs a written variation the employee agrees to, and it has to be prospective — you cannot sacrifice pay already earned. Auto-enrolment duties continue to apply and the sacrificed amount still counts toward the minimum contribution. Get the payroll software set up for it before the first run rather than unpicking it afterwards.