It is no surprise that salary sacrifice car schemes are on the rise. As a benefit that has the opportunity to be cost-neutral for the employer and cost effective for the employee, the popularity of these schemes is ever growing.
One of the common detractors, however, is the perceived risk involved in implementing a scheme: “What if people take a car and then leave?” “What if we can’t recoup the costs of someone who goes on parental leave?” “Will I have issues deducting in-life and end of contract charges from drivers if they arise?” These are just a few of the questions that are asked repeatedly by organisations thinking about introducing a salary sacrifice car scheme.
But are the risks a big enough reason to abandon a benefit that could be extremely appealing to employees? And do the risks involved really pose as much of a threat as people think?
What are the risks?
There are three main risk areas associated with salary sacrifice car schemes: terminations, unrecoverable rentals and recovering driver charges, in-life and at the end of contract.
A typical salary sacrifice rental is £322 a month; if an employee sacrificing that amount each month were to have a baby during the time of their car lease, the employer could have to foot the bill for the period of the employee’s maternity cover and may not have the option of recouping the expense once the employee returns to work.
As is to be expected, employers would see this as a risk. Indeed, research carried out among a sample of Zenith customers in February 2016 found that over 90% identified redundancy, leavers, maternity and long-term sick as serious risks prior to launching a scheme.
Managing risk
A good provider will help employers take the necessary steps to ensure that all risks are identified, assessed and planned for before implementing a scheme. Good planning can considerably reduce the risk associated with salary sacrifice car schemes and ensure that all risk is taken into account before the scheme launches.
Once the risks have been identified, employers need to be complete comprehensive scenario modelling to assess the risks that are most likely to occur during the life of the scheme and create a plan of action for dealing with these risks.
Some things to consider when carrying out this planning include: expected take-up rates, planned business strategy and growth, employees’ expected car choices, staff attrition rates and maternity and paternity volumes, policy and leave duration.
The next step
Once all the risks have been identified and assessed it is time to think about the solution. The good news is that there are a couple of different options available. Some leasing firms, including Zenith, offer a risk mitigation solution that covers customers for all major risks. Other businesses choose to take off-the-shelf insurance products, although these can work out to be quite expensive, or set up a contingency fund.
Any of these options could work, but it is important that employers consider the financial implications of each with their leasing provider before settling on the solution that is right for them.
Post-launch measures
It is important to measure and re-assess the risks continually throughout the life of the scheme as it is here that emloyers might find a few surprises. For example, although Zenith’s research found that more than 60% of customers considered end of contract damage costs as a serious risk prior to launching a scheme, only 18% have seen this risk becoming a reality since launching the scheme.
While taking the time to do an in-depth analysis of the possible risks involved is crucial, a salary sacrifice car scheme can prove to be a fantastic, high-value benefit for employers and employees.
Claire Evans is head of fleet consultancy at Zenith
