If you want to put more into your pension as a contractor, salary sacrifice can help. Through your umbrella, you agree to give up part of your gross pay. That amount goes straight into your pension before tax or National Insurance is taken.
A reputable umbrella company holds accreditation from FCSA, Professional Passport and SafeRec. If you want to set up or change salary sacrifice, contact us.
What is salary sacrifice for umbrella contractors?
Salary sacrifice for umbrella contractors means agreeing to reduce your gross pay by a set amount each pay period. Your umbrella sends that amount directly to your pension provider before calculating your income tax and NIC. You pay less tax and NIC because your taxable gross is lower.
This is different from making a pension contribution from your net pay. With net pay contributions, tax and NIC come out first. With salary sacrifice, they do not apply to the sacrificed amount.
Your umbrella handles the mechanics. You agree the sacrifice amount. It shows on your payslip as a deduction before the tax calculation runs.
How does salary sacrifice save you tax and NIC?
Salary sacrifice reduces your gross pay before PAYE and National Insurance are calculated. That means you pay income tax and employee NIC only on the lower gross figure. At basic rate, every £100 sacrificed saves around £28 compared with contributing from net pay.
The breakdown at 2026-27 rates for a basic-rate taxpayer:
Without sacrifice: earn £100, pay 20% income tax (£20) and 8% employee NIC (£8). You contribute the remaining £72 to your pension.
With salary sacrifice, £100 goes straight to your pension. You pay no income tax or NIC on it. The saving is £28 for every £100 sacrificed.
At the higher rate (40% income tax), the saving is even larger. Every £100 sacrificed saves £40 income tax plus £8 NIC, which is £48 saved per £100.
Use the umbrella salary calculator to model your own sacrifice scenario.
How much can you sacrifice through your umbrella?
You can sacrifice any amount above zero, up to the point where your remaining pay hits the National Minimum Wage floor of £12.71/hour. Beyond that floor, you cannot sacrifice further. The annual allowance for all pension contributions is £60,000 per tax year.
Your umbrella calculates your NMW floor based on your contracted hours. Once the floor is known, the maximum sacrifice amount is clear. Most contractors at day rates above £200/day have significant headroom.
The annual allowance is £60,000 or 100% of your earnings, whichever is lower. It rarely limits contractors unless you are making very large top-ups. Check with a financial adviser if you are close to this limit.
How does NMW limit your salary sacrifice?
After salary sacrifice, your effective hourly rate of remaining pay must still equal or exceed £12.71 per hour. Your umbrella applies this floor automatically. It will not process a sacrifice that takes your pay below this level.
The floor works like this. Take a contractor working 40 hours/week. NMW floor = 40 hours x £12.71 = £508.40/week minimum remaining pay.
At £700/week gross pay, the maximum sacrifice is £700 minus £508.40 = £191.60/week. The umbrella can process up to that amount.
If gross pay is £520/week, the maximum sacrifice is just £11.60/week. At very low assignment rates, sacrifice is almost impossible.
At higher rates the floor is rarely a constraint. At £350/day, gross pay runs at roughly £1,498/week. That leaves plenty of room above the NMW floor.
Salary sacrifice also reduces your gross pay. Benefits like Statutory Maternity Pay and Statutory Sick Pay use gross pay as their basis. Sacrificing heavily reduces those entitlements. Keep that in mind before increasing your sacrifice.
A worked example at 2026-27 rates
Basic-rate taxpayer, 40 hours/week, £800/week gross pay after umbrella costs. Sacrifice amount: £100/week.
Without salary sacrifice:
With £100/week salary sacrifice (on top of auto-enrolment):
The net pay drops by £68.69. The pension pot grows by £94.69 more. You give up £68.69 in take-home pay, but £94.69 more goes into your pension.
See how umbrella take-home pay adds up for the full breakdown of all deductions.
How do you set up salary sacrifice with your umbrella?
Contact your umbrella and ask to set up salary sacrifice. Tell them the amount or percentage you want to sacrifice each pay period. They update your payroll records and the change appears from your next payslip.
With DASA, you call or email the payroll team. We confirm the maximum sacrifice allowed under your NMW floor and set it up. It usually takes one pay cycle to process.
You can change or stop the sacrifice at any time. Ask us to adjust it whenever your rate or working hours change.
To understand how sacrifice appears on your payslip, read what each payslip line means.
What to watch out for
Three things to check before increasing salary sacrifice: your NMW headroom, the impact on statutory benefits, and your annual allowance. Get all three confirmed before you set a higher sacrifice amount.
NMW headroom is your gross pay minus the NMW floor for your hours. Your umbrella calculates this. Ask for it in writing.
Statutory Maternity Pay and Statutory Sick Pay use your post-sacrifice gross as their base. So does Statutory Paternity Pay. Sacrificing heavily reduces what those benefits pay out.
The annual allowance is £60,000 for 2026-27. If total pension input exceeds this, you face a tax charge. Total input includes sacrifice, employer contributions, and any personal top-ups. For most contractors this limit is far higher than their total contributions.
Read the workplace pensions for umbrella contractors for the bigger pension picture. Our umbrella contractor tax guide covers all deductions in full.
FAQs
What is salary sacrifice for umbrella contractors?
You agree to give up part of your gross pay by a set amount. Your umbrella then pays that amount into your pension before tax and NIC are calculated. Because your taxable pay is lower, you pay less income tax and employee NIC.
How much tax does salary sacrifice save through an umbrella?
At basic rate (2026-27), every £100 you sacrifice saves about £28: £20 income tax plus £8 employee NIC. At the higher rate, the saving goes up to around £48 for every £100 sacrificed.
How much can I salary sacrifice through my umbrella company?
You can sacrifice up to the point where your remaining pay reaches the NMW floor of £12.71/hour. Above that, you can usually sacrifice as much as you like, up to the £60,000 annual pension allowance.
How does NMW limit salary sacrifice through an umbrella?
After salary sacrifice, your remaining pay still has to meet the NMW of £12.71/hour for your contracted hours. Your umbrella works out that floor and stops the sacrifice there. At higher day rates, there is usually plenty of room.
Does salary sacrifice affect statutory benefits?
Yes. Statutory Maternity Pay, Statutory Sick Pay, and Statutory Paternity Pay are worked out from your gross pay after sacrifice. If you sacrifice a large amount, those benefits can be lower.
How do I set up salary sacrifice with DASA Umbrella?
Contact the DASA payroll team, tell us how much you want to sacrifice each pay period, and we'll set it up. The change will show on your next payslip. You can change or stop it whenever you need to.
