Salary sacrifice company cars: Building a business case

Key selling points

Supporting employees to drive low-CO2 cars.
• Significant enhancement of the reward package.
• Ability to deliver a saving to the employer.
• Reduces grey fleet and associated health and safety issues.
• Positive recruitment and retention tool. n Typical saving of up to 35% compared with leasing and insuring a car privately.
• Benefit of hassle-free motoring for a fixed monthly payment.
• Access to employer’s manufacturer discounts.
• No employee credit check required.
• Access to a new car every two or three years.

A salary sacrifice car scheme offers several advantages for the employee at little or no cost to the employer, so building a business case should not be difficult

Building the business case for a salary sacrifice scheme has twin targets. The HR department not only has to sell the benefit to the board, it also needs to get buy-in and engagement from staff once the scheme is under way.

Promoting a scheme to employees is covered later in this guide, so the first issue is tackled here. Convincing the board and other key stakeholders in a tough economic climate will require a compelling and fully costed argument.

David Hosking, managing director at provider Tusker, says: “It is important to assess what the objectives are. Is it just about putting in place a benefit that will attract or retain staff? Or is it more about restructuring an existing policy or better management of an employer’s existing grey fleet? Is the intention for it to be cost neutral or to actually generate revenue?

“The business case will normally be a combination of duty-of-care issues, offering a great, tax-efficient benefit to employees, reducing CO2 emissions and the organisation’s carbon footprint and reducing grey fleet mileage.”

As this guide highlights, there is the potential for the employer to make tax and national insurance (NI) savings, but it is probably not wise to make this the main selling point.

Graham Farquhar, employment tax partner at Ernst and Young, says: “An employer would need a huge fleet to do it specifically for the tax savings. The employer’s tax savings are relatively modest. It is often more about loyalty, benefits, flexibility, reducing fuel costs and [boosting] green credentials.”

Plough savings back

Harvey Perkins, partner at KPMG, says it can make sense for the employer to plough any tax savings back into the scheme.

“By passing the savings back to the employee, they can make the car cheaper and the scheme even more attractive,” he points out.

Nathan Male, director, global employer services at Deloitte, says salary sacrifice schemes remain “incredibly attractive” to staff, and from the employer’s perspective it is feasible to design, implement and operate a scheme without adding a level of administration.

In practice, the most common way to sell a scheme is to highlight the benefits around retention and employee loyalty, environmental credentials, health and safety (management of grey fleet and duty of care), and being able to offer all this at little, if any, extra cost. It makes sense to draw up some clearly costed examples of the sort of savings that could be achieved (see table below).

With many providers now able to offer standardised models and structures, implementation may require only minimal tweaking of an organisation’s IT and payroll systems or flexible benefits platform, and it should be no problem to link a car salary sacrifice portal to an existing corporate website.

It is also worth checking a provider’s offer in terms of document, set-up and credit acceptance fees, implementation costs and deposits. If it is offering some or all of these for free, that will be a plus factor.

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