How to prepare for the 2029 salary sacrifice cap

Before you start

Legal basis. Section 1 of the 2026 Act lets regulations treat pay given up for employer pension contributions as earnings for Class 1 NICs, above a "contributions limit" per tax year. The first regulations must set it at £2,000, from 2029/30. Section 2 covers Northern Ireland [2].

Who to involve. Reward, payroll, finance, your pension adviser and an employment lawyer.

What you need. Twelve months of payroll data per employee (salary, regular and bonus sacrifice, pay frequency, hourly rate), your salary sacrifice agreement and scheme rules.

Step 1: Confirm what the cap does

• What changes. Sacrificed pay above £2,000 in a tax year will attract employee and employer NICs [3].
• What stays the same. Income tax relief, within the usual limits. HM Treasury says all employer pension contributions will stay free of NICs [3]; those not paid for by sacrificed pay are outside the cap.
• Bonuses count. HMRC's impact note covers "salary or bonuses" sacrificed above the limit [4].
• Still to come. The Act lets regulations prescribe an equivalent of the limit for earners paid weekly or at other intervals, and lets that equivalent exceed the arithmetical equivalent (£166.67 a month) by up to £1 [2]. We found no draft regulations as at 20 September 2026. Guidance will follow before April 2029 [3].

Step 2: Identify who sacrifices more than £2,000

Total each employee's sacrifice, including bonuses, over a tax year. A percentage sacrifice passes £2,000 above these annual pay levels:

Also flag uneven sacrifice, such as in a bonus month, and anyone with two jobs; the regulations will decide how the limit applies.

In the lumi reward benchmark, 52.0% of organisations offer pension through salary sacrifice by default, the common answer (n = 269). Across all salary sacrifice arrangements, the common participation band is 10–24% of employees (31.4%). Under 10% (30.0%) and 25–49% (24.1%) are alternative answers, and 50% or more (14.5%) is rare (n = 220, N/A excluded).

Step 3: Model the extra NICs

As a stand-in, use 2026/27 category A rates: employees pay 8% between £12,570 and £50,270 a year and 2% above; employers pay 15% above £5,000 [5]. Rates for 2029/30 are not known, so results are illustrative, and the model is annual, ignoring pay-period effects.

PT, UEL, ST, CAP = 12_570, 50_270, 5_000, 2_000   # 2026/27, annual

def ee_nic(e):
    return max(0, min(e, UEL) - PT) * 0.08 + max(0, e - UEL) * 0.02

def er_nic(e, er=0.15):
    return max(0, e - ST) * er

def extra_nic(pay, sacrifice, er=0.15):
    now = pay - sacrifice                  # today: all NIC-free
    after = now + max(0, sacrifice - CAP)  # 2029: excess NIC-able
    return ee_nic(after) - ee_nic(now), er_nic(after, er) - er_nic(now, er)

Worked example (illustrative pay):

C's excess crosses the upper earnings limit (NIC earnings go from £48,760 to £51,000), so £1,510 is charged at 8% and £730 at 2%. All of D's excess falls in the 2% band. At illustrative employer rates of 14% and 16%, the employer total would be £1,027.60 and £1,174.40.

In the lumi reward benchmark, 51.4% of organisations have not yet assessed the workforce cost of the cap, the common answer. 32.9% have modelled it and 15.8% have done a high-level review (n = 222).

Step 4: Decide what happens to sacrifice above £2,000

• Keep the scheme as it is. No contract change is needed. Both parties pay NICs on the excess; payroll tracks each person against the limit.
• Cap sacrifice at £2,000 and take the rest as employee contributions. NICs are due on the excess either way, but you run two routes and contractual pay goes up. Under relief at source, higher-rate taxpayers claim part of their relief themselves [6].
• Move everyone to net pay or relief at source, or withdraw salary sacrifice. One route to run, but both parties lose the NIC saving on the first £2,000 and every member's contract changes.
• Restructure towards employer contributions. Those not paid for by sacrificed pay stay NIC-free [3], but cost more unless funded from the pay budget, and change the pay and pension mix.

In the lumi reward benchmark, the common intention is to maintain the scheme unchanged (71.2%). Restructuring, for example through employer contributions (15.1%), withdrawing salary sacrifice (8.0%) and being undecided (5.7%) are each rare (n = 212, N/A excluded). Rare is a count, not a verdict.

Step 5: Decide what happens to employer NIC savings

The employer's NIC saving per person will be at most £300 (15% of £2,000) at 2026/27 rates. For A to D, it goes from £225, £405, £636 and £960 today to £225, £300, £300 and £300.

• Keep passing savings on as top-ups. Top-ups shrink for higher sacrificers, so explain why.
• Stop or reduce sharing. This offsets part of the new cost, but members see lower contributions, which may need consultation (Step 8).
• Redirect the saving, for example into a flat contribution increase for all. Value is spread more evenly, but who gains changes.

In the lumi reward benchmark, 83.0% of organisations do not share employer NIC savings with employees, the common answer. 17.0% share them fully or partially; each of those answers is rare (n = 194, N/A excluded).

Step 6: Decide on bonus sacrifice

Employee E has an illustrative salary of £60,000, no regular sacrifice, and sacrifices a £5,000 bonus. At 2026/27 rates, the £3,000 above the cap costs £60 in extra employee NIC (all at 2%) and £450 in extra employer NIC.

• Keep it open. NICs apply to any excess.
• Limit it to what fits under the cap after regular sacrifice. Keeps the NIC saving but constrains higher sacrificers.
• Offer bonus-to-pension through net pay or relief at source. One route for bonuses, but no NIC saving.

HMRC's timing rule still applies: entitlement "must be given up before it is treated as received for employment income purposes" [7].

Step 7: Run the National Minimum Wage check

Salary sacrifice reduces pay for minimum wage purposes, and each extra arrangement reduces it further [8]. HMRC says sacrifice must not take cash earnings below minimum wage rates, and employers must have procedures to cap it [9]. From 1 April 2026 the rate for workers aged 21 and over is £12.71 an hour [10].

Example (illustrative pay): a worker on £13.20 an hour has 49p of headroom, or 3.71% of pay: £955.50 a year at 37.5 hours for 52 weeks, across all arrangements. A 5% sacrifice would take them to £12.54, below the minimum. Check each pay reference period (up to one calendar month) [8], and re-check whenever rates or your design change.

Step 8: Change contracts, consult and communicate

• Contracts. A change to what is sacrificed varies the contract, which must be clear on cash and non-cash entitlements at any time [9]. Agree it before the first affected payment [7]. Fire-and-rehire protections are due from January 2027, so take advice before changing terms without agreement.
• Pension consultation. Employers with 50 or more employees in Great Britain must consult affected members for at least 60 days before a "listed change", such as cutting employer contributions or raising member contributions [11]. Moving sacrifice to net pay or relief at source, or cutting top-ups, may be caught. Changes made to comply with legislation are excluded; take advice on whether yours qualifies.
• Communications. Explain the cap, the start date and that income tax relief is unchanged. Give each affected person an illustration and any deadlines, not financial advice.

Step 9: Get payroll ready

HM Treasury says employers will need to report the total amount sacrificed through their existing payroll software, and that HMRC will engage with stakeholders and publish further guidance [3]. HMRC expects reporting to be in line with existing methods, but says the design and operation of the limit will be set out in secondary legislation [4], so treat the detail below as provisional. Ask your payroll provider how they will:

• track cumulative sacrifice in the tax year, including bonuses;
• apply any pay-period equivalent, and handle starters, leavers and multiple jobs;
• report amounts sacrificed to HMRC;
• test before April 2029, for example with a parallel run in 2028/29.

Checklist

• Pulled 12 months of sacrifice data, including bonuses
• Listed everyone above £2,000, uneven sacrificers and multiple job holders
• Modelled extra NICs at 2026/27 rates and tested other rates
• Chosen a scheme route and recorded the trade-offs
• Decided what happens to employer NIC savings
• Decided the bonus sacrifice approach
• Run the minimum wage check on the new design
• Checked whether pension consultation applies
• Drafted contract variations and communications
• Agreed a payroll test plan and a date to check for regulations

Related

• Salary sacrifice and the 2029 NIC cap: UK benchmark 2026 — the benchmark findings behind the figures in this guide.
• How to set employer pension contributions above the auto-enrolment minimum
• How to design a bonus scheme: eligibility, measures, gatekeepers, malus and clawback
• How lumi works: methodology — how these figures are collected and calculated.