Salary sacrifice and Net Pay are ways employees can pay for a benefit through their payroll. The key difference is when the deduction happens and how each option is treated for tax.
At Perkbox, we offer both salary sacrifice and Net Pay for our Cycle to Work and Home and Electronics benefits.
Salary Sacrifice
An employee agrees to give up part of their gross salary in exchange for a benefit.
Because the deduction is taken before tax, the employee may save on National Insurance where eligible. This usually results in a lower monthly cost compared to paying after tax.
Salary sacrifice is only available to employees who meet eligibility rules and must not reduce pay below the National Minimum Wage or National Living Wage. It temporarily reduces contractual salary for the length of the agreement.
Net Pay
With Net Pay, the cost of the benefit is deducted from an employee’s take-home pay, after tax.
There are no tax or National Insurance savings, and the employee pays the full retail cost, spread over monthly instalments through payroll. Contractual salary is not affected.
Net Pay is designed to be inclusive, giving safe and secure payroll-based access to benefits for employees who do not qualify for salary sacrifice, such as those in lower-income or frontline roles.
There is an extra step for employees when they use Net Pay. Employees must sign a Net Pay agreement at checkout before they can submit a Net Pay order.
Comparison overview
Salary sacrifice can offer tax, NI and pension savings, but this depends on the benefit type and any applicable Benefit in Kind tax.
Employee savings apply to... | Salary sacrifice (Cycle to Work) | Salary sacrifice (Home and Electronics) | Net Pay (Both) |
Income tax | ✓ | ✓* | ✗ |
National Insurance (NI) | ✓ | ✓ | ✗ |
Pension contribution (NHS only) | ✓ | ✓ | ✗ |
Benefit in kind tax | ✗ | ✓ | ✗ |
Deduction timing | Taken before tax and NI | Taken before tax and NI | Taken after all tax and NI |
*When using salary sacrifice for Home and Electronics, employees must also pay a Benefit in kind tax, which offsets any income tax savings. This means that employees do not make an overall income tax saving on this benefit.
Order approval
Approving Net Pay orders is very similar to approving salary sacrifice orders, with clear labels showing which scheme applies.
Salary sacrifice approvals include mandatory National Minimum Wage checks and reflect a temporary reduction in contractual salary, with pricing shown after potential tax savings.
Net Pay approvals are treated as a payroll deduction agreement rather than a salary change. Admins see gross pricing only, and the order becomes effective once approved.
Employee experience
The employee experience for Net Pay and salary sacrifice is largely the same, with a few key differences.
The first difference is the price shown on the product tile. Salary sacrifice displays pricing after tax savings, while Net Pay shows the full price, split into monthly instalments.
When an employee places a Net Pay order, they must accept a specific Net Pay agreement before submitting their request.
Both Net Pay and salary sacrifice orders require employer approval. Aside from these differences, the rest of the process remains the same.