Awareness of car salary sacrifice schemes has increased significantly in the past three years, leading to many new launches.
Estimates for the number of cars covered by salary sacrifice schemes vary, but a realistic figure would be 50,000-75,000, and this figure is expected to grow in coming years.
The number of providers has also increased significantly and recent focus has been on the ‘employee experience’. Many suppliers are concentrating on making schemes as simple and user-friendly as possible, from the initial promotion of a scheme, through web-based quotation processes, order and delivery, to service, maintenance and repair (SMR) services.
A well-structured car salary sacrifice scheme will provide the employee with a new car, fully expensed, apart from fuel, over a fixed period, typically two to four years. The full costs of the scheme, including administration, national insurance (NI) and other costs, are paid for by the employee through a reduction in gross salary.
The employee saves tax and NI on the salary sacrificed, but is liable for benefit-in-kind (BIK) tax on the car provided. This latter point makes such schemes particularly attractive and effective for lower-emitting/lower-taxation vehicles.
Employees can enjoy the benefits and status of a company car at a lower cost, with savings on income tax and NI contributions outweighing their BIK contributions. They also enjoy the use of a more fuel-efficient, low CO2 emitting, fully serviced and maintained new car for the fixed period, backed by comprehensive insurance provided by their employer.
Employers pay a more tax-efficient remuneration and reduced Class 1A NI contributions. Providing the necessary ’buffers’ are put in place, it costs employers nothing to introduce a salary sacrifice scheme because it is managed as a normal company car scheme.
Car salary sacrifice schemes also enhance corporate social responsibility (CSR) and help meet employers’ duty of care responsibilities by eliminating the ‘grey fleet’ risk: privately owned vehicles used for ‘at work’ mileage. Importantly, it is a cost-neutral method of enhancing the value of the total reward package and can help to attract and retain talented employees.
As employers often fear the potential costs of an employee leaving the organisation, they need to put buffers in place to cover early termination, excess mileage, outstanding fines, damage, and so on. Careful scheme design, policies and procedures can mitigate these risks and provide a financial buffer for any unrecoverable costs.
It should also be noted that during periods of ordinary maternity, paternity and adoption leave for employees, employers are legally obliged to continue to provide all contractual benefits, so the salary sacrifice benefits must still be provided, with any associated costs met by the employer.
Keys to success
- A highly successful car salary sacrifice scheme may see 10-15% of employees take advantage of it. However, typical take-up rates are much lower, averaging 2% to 3% of eligible employees.
- Communication is the key to success. It starts with the launch of the scheme and continues with regular reminders and one-off communications to keep the scheme fresh and at the forefront of employees’ minds. New joiners are likely to be the most receptive, so details should be included in their formal induction.
- Potential providers should not just demonstrate technical competence but be able to deliver compelling employee messages. Important, too, is the quality of the employee experience, both in terms of the helpdesk support and the web-based tools provided.
- In recent years, the debate on salary sacrifice has moved on from the basics to how to enhance the employee experience and integrate the offer into the wider benefits programme, increasing its appeal.
Roddy Graham is chairman of the Institute of Car Fleet Management