What is the future shape of salary sacrifice car schemes?

Electric cars are helping to steer salary sacrifice car schemes in a new direction.

Future shape of salary sacrifice car schemes

If you read nothing else, read this…

  • Fleet providers have begun to introduce electric cars under a salary sacrifice arrangement.
  • Almost half (48%) of employers are considering introducing salary sacrifice.
  • Policies can be put in place to prevent the salary sacrifice risks associated with maternity leave and long-term employee absence.

In November 2013, fleet management firm Zenith launched a new strategy to make full electric, plug-in hybrid or range extender cars available for salary sacrifice car schemes.

That followed the launch of AlphaElectric, an electric car consultancy service, by fleet provider Alphabet, which aims to help employers decide how best to use electric cars in their fleet.

Tusker has also started to offer electric cars through its salary sacrifice schemes, and plans to run a series of initiatives to educate employees about the benefits of electric cars.

The attractions of an electric car include a government grant of up to £5,000, low recharging costs and 0% benefit-in-kind tax, rising to 5% from 2015-16.

David Hosking, chief executive officer at Tusker, says: “Electric cars are definitely coming to the fore. Clearly, the infrastructure and investment over the last 12 months, and the increase in the number of charging stations available, has helped.”

Hosking points out that the initial lease cost of about £30,000 for an electric car is offset by zero fuel costs and the breaks on benefit-in-kind tax. 

New schemes

But electric cars are not the only development affecting the company car market: salary sacrifice car schemes themselves are changing to help employers manage risk.

SG Fleet launched its Novalease scheme last year, which can be set up for any number of employees with no requirement for a contingency fund or insurance to cover early contract termination costs.

This is because the contract is with the employee, not the employer, and is based on a novel salary sacrifice-based leasing structure.

Guy Roberts, director of Novalease, says: ”When an employee leaves our scheme, they take the car with them. They do not create any early termination risk for the employer. They pay us direct, or take the car to their new employer and get tax savings.”

The Novalease scheme requires employers to possess a consumer credit licence (category C) to be able to offer the benefit to employees.

“SG Fleet acknowledges that car salary sacrifice is consumer credit, just like bikes-for-work schemes,” says Roberts. “SG Fleet takes responsibility for ensuring that all contracts are fully documented and compliant with the Consumer Credit Act, which removes another potential risk to the employer.”

Common risks

But employers’ car schemes have a long way to go before the most common risks of salary sacrifice are overcome.

These include long-term employee absences, such as maternity leave or sickness. In the case of maternity leave in particular, although the employee’s pay will gradually reduce, the monthly salary sacrifice contribution towards their car cannot be altered, and the car cannot be taken away.

Nevertheless, take-up of salary sacrifice car schemes is expected to continue to grow.

Research by the Association of Car Fleet Operators (ACFO) , published on 28 October 2013, found that almost half (48%) of respondents that do not currently offer a salary sacrifice car scheme are considering introducing one. 

And The Benefits Research , published in May 2013 by Employee Benefits, found that 6% of employers have introduced a new salary sacrifice car scheme this year

Mike Belcher, head of sales at Hitachi Capital, says: “Organisations looking at flexible benefits are increasingly expanding their range to introduce cars. It’s going to boom. It had its initial burst as a new product, but risks have been reduced.

“Salary sacrifice will become a stable part of flexible benefits packages for the foreseeable future. It’s here to stay.”