After a house, a car is typically the biggest purchase a person makes. So it is no surprise that cars are quickly becoming an essential part of a competitive benefits package.
However, company cars have always posed challenges. Balancing issues such as the choice of cars, recharges and ex-employees leaving cars behind can be problematic.
A salary sacrifice scheme delivers the benefits of company cars to employees, together with a full choice of cars and ways to mitigate or, better still, not create any scheme risks.
When designing a scheme, there are some key points to consider:
One: How should early termination risks be managed?
The biggest issue to face is what happens when an employee leaves. Here, employers have several options. First, they can tell their provider the employee has left and their liability is finished.
Second, they can try to redeploy the car to someone else by subsidising the cost.
Third, they could build a contingency fund by increasing the charge to each employee. Effectively, this is self-insurance, so the organisation may not be permitted to do this.
Fourth, employers could take out an insurance policy and pass on the cost to each employee.
Options two, three and four are often done together, but they all represent additional cost and administration, which reduces the attractiveness and take-up of a scheme.
Two: How can scheme take-up be maximised?
For most staff, this will be a new concept, so awareness, education and early adopters are key to a successful scheme.
A fully functioning online service is seen as a key tool. However, ordering childcare vouchers is quite different from getting a new car. A scheme should be web-enabled but this isn’t the key to success. The most important thing is to give employees the opportunity to discuss their options with someone. Employee roadshows, drop-in sessions and a helpline are the real keys to driving take-up.
Three: How does an employer know its scheme is consumer credit compliant?
Simple: make sure everything is done within the requirements of the Consumer Credit Act. This includes documentation, licensing from the Financial Conduct Authority, and the employee’s consumer credit rights. The scheme provider should be able to do this.
Now, employers might take the view that car salary sacrifice is not actually consumer credit. But a bikes-for-work scheme is always treated as consumer credit and the basics of this arrangement are the same. It is inconsistent to treat one as consumer credit and the other not.
Four: How can administration be minimised?
This is down to what the scheme provider can facilitate. Employers can waste a lot of time and resource trying to redeploy cars, dealing with recharges, early termination fees and car damages. There are three main options for dealing with recharges and damages:
First, the scheme provider manages all these issues directly with employees.
Second, the scheme provider bills the employer and the employer bills its staff.
Third, the scheme provider provides a ‘no quibbles’ solution. These work well to reduce instances of recharges but costs are built into the lease, so it is not quite a free lunch.
If an organisation has tens of thousands of staff, it could design its own bespoke structure. However, it will take significant time and capital to design and run a scheme from scratch. Most organisations will look to a specialist provider for a solution.
So think about the insights above and make these key drivers in the selection process for a provider and scheme design.
Guy Roberts is director at SG Fleet
