When we speak to employers about car salary sacrifice schemes, the two main questions they typically ask are what if an employee leaves, and will there be a lot of administration? The answers depend on the scheme structure.
There are two well-established ways to structure car salary sacrifice arrangements – novated leasing and corporate leasing.
Novated leasing originated in Australia, where car salary sacrifice has been around for 25 years, and has been used in the UK for more than three years. Novated leasing has been designed specifically for car salary sacrifice and as a voluntary benefit, whereas corporate leasing structure is based on a fleet product, which creates a number of issues.
What if an employee leaves?
Under a corporate leasing structure, if an employee leaves, they leave the car with the employer, creating potential issues with redeployment of the car or a potential early termination cost. This can be mitigated by the provider or the employer (or often both) setting up contingency funding. However, there may be gaps, such as no cover for the first six months of an employee’s lease.
With novated leasing, the employee takes the car with them if they leave, removing the need for contingency cover and the cost of including that cover in their monthly salary sacrifice. The employee has the option to take the salary sacrifice arrangement to their new employer or they can continue the lease directly with the provider.
Administration
The other main question is: what administration is involved? The answer also depends on the scheme structure. With corporate leasing, the employer is ultimately responsible for the cars. Problems such as speeding tickets, parking fines and damage to the car can come back to the employer. Most providers will initially request payment from the employee, but if it is not paid, the provider will invoice the employer. The employer will then have employee relations to deal with and will need to find a way to recover the costs from the employee.
With novated leasing, all employers need to do is manage the monthly payroll deduction. Any other costs are the responsibility of the employee. As a result, there will be no involvement required from the employer.
So if employers are looking at a scheme, or are already running one, they should consider which structure best suits their organisation.
Guy Roberts is director of Novalease at SG Fleet
