Salary Sacrifice For Micro Business: Benefits & Top 5 Ideas

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The majority of private companies around the world belong to the group of small and micro businesses. That means they employ fewer than 50 people.

In the European Union, in 2019, almost 99% of companies were categorized as small and micro businesses. The workforce employed in those companies was just under the half of total employees in the European economy. At the same time, small and micro companies added just over one-third of total value.

If we are looking at United Kingdom’s economy, the situation is practically identical. Of 5.5 million business in the UK, 99.2% has fewer than 50 employees. But, the workforce employed in those companies exceeded 60% of total employees.

All those small and micro businesses use salary sacrifice to maintain growth and support the needs of their talented employees. In this guide, we will give an explanation of salary sacrifice for micro business and how you can use it to improve your chances on the market.

It is important to keep in mind that it is unrealistic that small businesses or new startups can keep up with the salary packages offered by big corporations. But small and micro business owners can use several techniques to keep workers and make them happy. They need to create a work culture that will be people-centric and fulfill most of the basic and advanced needs of their employees. Never neglect psychological needs, such as respect, positioning, and accomplishment.

What Is Salary Sacrifice?

Salary sacrifice represents an agreement between the employer and its employees where they trade a part of their pre-tax salary in exchange for benefits of equal (or a bit more) value. Some examples of a salary sacrifice for micro business are the use of a company car, contribution to pension or insurance, free courses, free memberships, etc.

Salary Sacrifice For Micro Business
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It is obvious that, with this arrangement, an employee earns less money, but on the other side, he/she can expect benefits that aren’t affordable otherwise. This trade-off is the main motivation for accepting the salary sacrifice. Of course, many professionals can consider salary sacrifice as a deal-breaker and decide to leave the company, but that is the risk a company owner needs to take if he wants to have long-term financial stability.

If you properly install salary sacrifice among your team by hearing their wants and needs, you will get an effective tool over workers’ demands. With certain measures, you can give your employees more control over their job roles and, at the same time, reward them through tax breaks or non-cash benefits.

Salary Sacrifice For Micro Business: Benefits And Challenges

Salary sacrifice cannot be offered to every employee. It surely won’t be accepted by those who will be taken below minimum wage (a stipulation that may restrict your ability to offer salary sacrifice to your employees) or those who think they are underpaid.

But, if you can come up with an arrangement with your employees, there are several key benefits to your business:

  • This could potentially put you in a lower tax bracket, resulting in less income tax paid.
  • You could access certain goods or services at a pre-tax (and therefore discounted) rate. This could be particularly beneficial for items like cars, childcare, or additional pension contributions.
  • In many regions, employers’ National Insurance contributions are based on the employees’ salaries. By reducing this salary with a sacrifice scheme, employers can often reduce their National Insurance contributions.

Of course, there are some drawbacks of salary sacrifice present to both micro businesses and their employees:

  • Since salary sacrifice for micro business reduces your official income, it can impact loan or mortgage applications. Banks and other financial institutions may view you as having lower financial capacity due to your decreased salary.
  • If not properly explained and managed, employees might misunderstand the implications of salary sacrifice. This could lead to dissatisfaction or even legal issues if employees feel they were not fully informed about the potential drawbacks.

Salary sacrifice for micro business is a two-sided coin; one side provides the flexibility of your business and gives your employees satisfaction. But the other side is full of challenges if the staff think they are earning too low and cannot afford basic human needs.

salary sacrifice benefits
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Salary Sacrifice Ideas For Your Micro Business

We already concluded that micro businesses cannot compete with mega-corporations in terms of high salaries. But what non-cash benefits can you offer to your workers that they have been willing to sign a salary sacrifice agreement with you? Here are several popular examples:

1. Pension contributions

Every employer is legally obliged to enroll employees in a workplace pension scheme. If they are at the lower limit of savings, you can gain employee loyalty by increasing contributions in a tax-efficient way to help your team save for retirement.

Because of the tax reduction, the government will contribute an additional percentage of money that will increase the total amount in the pension fund for each individual who accepts the current salary sacrifice. They will gain more if they decide to be patient.

2. Tech gadgets

If you have workers who travel frequently or work from home, you can equip them with the newest tech gadgets, such as laptops, tablets, or high-class smartphones. Letting them use those gadgets for personal needs will make them prone to salary sacrifice.

3. Gym membership and vouchers for wellness programs

This non-cash benefit contributes to both the physical and mental well-being of your team. You will promote a healthy lifestyle and possibly reduce the number of sick days. With a bit of luck, you will even boost workers’ productivity.

These vouchers are a great way for team-building efforts. The same interests connect people and make their bond stronger.

4. Cycle to work scheme

A cycle-to-work scheme encourages healthy living and pollution reduction, which contributes to your business’s corporate responsibility. You can equip willing employees with bikes and additional accessories as a tool for salary sacrifice.  

If your business is located in a region where cycling is feasible, offering a cycle-to-work scheme can be a win-win. Employees save a lot of money they would give for fuel, save time for going and arriving from work, and improve their fitness. On the other hand, business owners promote a green lifestyle.

5. Childcare vouchers

Parenting is very challenging, so why not ease that for your workers? You can pay for childcare with your worker’s pre-tax salary. As the employer, you source tax-free vouchers that can be used by your team at a childcare provider of their choice.


The truth is that salary sacrifice for micro business can work, but only if you offer the right package and meet willingness from the other side. It is a flexible concept that allows business owners to target individual needs and offer proper benefits.

But, you need to be aware that offering salary sacrifice can be counterproductive in some cases. This is particularly true for micro businesses with employees working on (or close to) the minimum wage. Always keep in mind how much your employees earn and what can they buy with that amount of money. If a pay rise in cash won’t mean a lot to them, they will be more willing to accept the benefits of salary sacrifice.

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