Are salary sacrifice car schemes worth employers’ efforts to implement?

Salary sacrifice car schemes may be seen as a complicated benefit to implement and communicate to employees, prompting employers to question whether it is worth the effort to offer a scheme.

Salary sacrifice car schemes

If you read nothing else, read this…

  • Salary sacrifice car schemes offer staff access to a brand new car and ongoing support and maintenance in return for sacrificing a portion of their gross salary. 
  • Employers and employees can make big tax and national insurance savings. 
  • Scheme communications must highlight employees’ benefit-in-kind liability. 

As with most employee benefits, there are risks associated with salary sacrifice car schemes . Perhaps the biggest is the costs and issues an employer may face if a scheme member goes on maternity or long-term sick leave.

The risk of low employee take-up may also be a concern, plus a general lack of interest in the benefit, despite the fact that it can offer staff an all-inclusive package including a brand new car, servicing and maintenance, road tax and fully comprehensive insurance, in return for them sacrificing a portion of their gross pay.

Developments in salary sacrifice car scheme providers’ products and services mean the benefit has never been easier to implement or manage, as long as employers establish robust in-house car scheme policies and nurture a relationship with their selected provider.

Gary Hull, executive director at EY and one of eight guests at the Employee Benefits Fleet roundtable debate hosted in July, says: “I don’t think there’s any doubt that salary sacrifice is worth it for the vast majority of organisations. Large employers can negotiate significant discounts with manufacturers and can deliver CO2-efficient cars to employees in a very tax-efficient way that allows those that could not otherwise run a new car to benefit.” 

Cars are subject to benefit-in-kind tax

Nadeen Jackson-Barker, AXA UK
Nadeen Jackson-Barker, AXA UK

Salary sacrifice car schemes enable both employers and employees to save on income tax and national insurance (NI), but cars are subject to benefit-in-kind (BIK) tax, which can be hard for employees to understand.

Nadeen Jackson-Barker, reward consultant at Axa UK, says: “They understand that they’re going to save tax and NI, but they don’t realise they’ve got a corresponding BIK liability. I think more needs to be done to educate them.”

Salary sacrifice car scheme provider Tusker requires all scheme members to confirm their understanding of the BIK liability in writing. David Hosking, chief executive of Tusker, says: “Before we accept an order, every employee has to put a statement in writing to us that says ‘I want to order this car and I understand that it incurs company car tax’.”  

But Jackson-Barker doesn’t think this goes far enough to increase employees’ understanding and that employers’ communication strategies need to be improved. 

Organisations must tailor communication strategies 

Most salary sacrifice car scheme providers showcase employee and employer guides on their websites to explain how salary sacrifice works, and video is becoming more popular. Hosking says: “We’ve got a salary sacrifice video and a guide to BIK. People don’t read things; they’re more inclined to watch a two to three-minute video because it’s easy.”

But there will always be employees who did not realise they had to pay BIK, he adds.

Employee roadshows are also gaining popularity. Chris Chandler, senior consultant at Lex Autolease, says: “Our take-up successes have come from us going in to employers and doing roadshows, because if we give employees a document and it’s got tax all over it, they get to the third line down and stop reading.”

Comprehensive communication strategies are key to success

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Caroline Sandall, fleet manager at Barclays and deputy chairman of the Association of Car Fleet Operators, says comprehensive communication strategies are key to the success of a salary sacrifice scheme. “If we can’t get the communications right and we’re not confident that employees will understand something, we don’t get the take-up and if we don’t get the take-up, there’s no point in doing anything at all.”

Jonathan Smith, a relationship director at Zenith, says employers must decide on the level of communication that is most appropriate for their organisation.