Salary Sacrifice and furlough reference salary

HMRC have added further clarification to the furlough guidance in relation to salary sacrifice arrangements and the calculation of the reference salary for the Job Retention Scheme.

They clarify that:

You cannot include the following when calculating wages:

  • payments made at the discretion of the employer or a client – where the employer or client was under no contractual obligation to pay, including:
    • any tips, including those distributed through troncs
    • discretionary bonuses
    • discretionary commission payments
  • non-cash payments
  • non-monetary benefits like benefits in kind (such as a company car), including benefits received in exchange for giving up an amount of pay under a salary sacrifice scheme
  • employer pension contributions, including pension contributions received in exchange for giving up an amount of pay under a salary sacrifice scheme (you can still include pension contributions that the employee makes from their wages, such as through a Net Pay Arrangement pension scheme)
  • amounts of pay given up under a salary sacrifice scheme


Salary Sacrifice arrangements are complex for many to understand. The government furlough grant is to cover declared taxable pay on the relevant RTI submission relating to the relevant decision and calculation periods. This is impacted by salary sacrifice which are not deductions from pay, but a contractual pay cut (the employee never earned or received the amount), often to receive a free of charge benefit in kind funded by the employer. Furlough does not cover the provision of benefits.

For more information on salary sacrifice and furlough implications see the PAYadvice.UK blog:

PAYadvice.UK 4/2/2021

2 thoughts on “Salary Sacrifice and furlough reference salary

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