A £60,000 offer is not always better than a £55,000 offer. When you factor in employer pension contributions, salary sacrifice schemes, bonus potential, commute costs, and other benefits, the lower headline salary can leave you with more money in your pocket. This guide shows you how to do the maths properly.
Step 1: Compare net take-home, not gross
Run both salaries through the income tax calculator to see the monthly take-home difference. A £5,000 gross difference at the higher rate threshold translates to only ~£240/month after tax and NI.
Step 2: Value the pension contribution
Employer pension contributions are effectively free money. An employer contributing 10% on a £55,000 salary adds £5,500 to your pension annually — tax-free. Compare this to an employer offering only 3% on £60,000 (£1,800). The "lower" offer gives you £3,700 more in pension alone.
Step 3: Factor in benefits in kind
- Private medical insurance: worth £1,000–£3,000/year (taxable as a benefit)
- Company car / EV scheme: can be worth thousands with low BiK rates
- Life insurance: typically 3–4× salary
- Income protection: can be worth hundreds/month if you need to claim
- Share schemes (EMI, SIP): potential tax-advantaged gains
Step 4: Account for commute costs
A job paying £5,000 more but requiring a £400/month train pass actually gives you less. Commute costs come from post-tax income — you need to earn approximately £550/month gross (at 40% tax) to cover a £400/month commute.
Step 5: Consider salary sacrifice options
Does the new employer offer salary sacrifice for pensions, EVs, or Cycle to Work? These save both income tax and NI — often worth more than a small salary premium. Use the salary sacrifice calculator to model the impact.
The total compensation checklist
- Gross salary → convert to monthly net
- + Employer pension (as annual value)
- + Bonus (risk-adjusted — what is realistic, not maximum)
- + Benefits in kind (annual value)
- − Commute costs (annual, from net pay)
- − Loss of current benefits you will give up
- = True annual value comparison