Salary sacrifice is seriously popular right now. So, what’s driving the growth, what are the benefits and how can businesses mitigate common barriers to implementation?
What is a salary sacrifice car scheme?
A salary sacrifice car scheme is an arrangement that deducts an employee’s gross salary in exchange for the use of a vehicle.
How does a salary sacrifice car scheme work?
Salary sacrifice is a funding method which allows non-company car drivers to ‘sacrifice’ part of their gross salary for a fully maintained electric vehicle (EV). It is very tax efficient for the employee as it reduces their income tax and national insurance (NI) contributions. The scheme also works financially for the employer as it lowers its NI liabilities.
Why is salary sacrifice so popular?
Salary sacrifice is growing fast, with the British Vehicle and Rental Leasing Association (BVRLA) reporting a 68% year on year increase in the size of the salary sacrifice fleet last year. The funding method is ideally suited to the current market conditions where businesses and employees are looking to save money and make the switch to EVs. So, what is driving the growth?
> Employee demand - 74% of employees want to have salary sacrifice as part of their benefit package according to a recent YouGov survey. Employees also increasingly expect sustainable practices from employers
> Strong EV appetite – the BVRLA predicts that 40% of new vehicle orders will be ultra-low emission in 2024. The Society for Motor Manufacturers and Traders (SMMT) reported that January 2024 marked the 18th consecutive month of growth for new EV car registrations
> Low EV Benefit in Kind rates - rates are capped at just 2% until April 2025 and remain low until 2028
Salary sacrifice car scheme benefits
Example employer cost savings
Example employee cost saving
Here’s an example cost saving for a MGZS 130kWh, fully maintained, serviced and insured (based on a 20% tax payer, 10k miles per annum on a three-year lease, as of Feb 2024)
And here’s the saving cost saving for a BMWI4, 210kWh, fully maintained, serviced and insured (based on a 40% tax payer,10k miles per annum on a three year lease, as of Feb 2024)
What are the barriers to implementing a salary sacrifice car scheme?
In our experience, there are three main barriers to implementing a salary sacrifice car scheme and the good news is they can all be mitigated.
Barrier 1: What happens if an employee with a vehicle on salary sacrifice leaves?
Scenario: An employee takes salary sacrifice and leaves the business within the vehicle contract term. This means that the business could incur an early termination fee.
How to mitigate the risk:
> Offset the risk by setting aside a proportion of the NI savings
> Re-allocate the vehicle internally
> Take out early termination insurance, provided by a specialist insurer and can cover resignation, loss of licence and accidental death
Barrier 2: Our employees aren’t ready for electric vehicles
Scenario: Employees can be nervous about making the switch to EVs and may have concerns around charging infrastructure
How to mitigate:
> Try before you buy – enable employees to try driving an EV by running a demonstration day
> Educate your drivers – provide information on how and where to charge. It is useful to signpost apps such as Zapmap, videos on how to charge and share information on the growth of charging infrastructure
> Make charging easy – consider offering workplace and home charging installation
> Engage your employees – ongoing communication through activities such as a launch day, educational communications and vehicle special offers
Barrier 3: We don’t have time to manage an additional employee benefit
Scenario: Insufficient internal resources to administrate a new scheme which can be perceived as complex and operationally challenging.
How to mitigate:
> Work with an expert provider – your salary sacrifice partner needs to have experience in managing the full end-to-end process. This should include everything from negotiating with dealers to running demonstration days and working directly with your drivers
> Use technology to enable employees to self-serve – a salary sacrifice driver portal is a useful tool, helps drivers choose the vehicles they want and makes the scheme simple to administrate
> Involve your internal stakeholders – get your internal team onboard from the start
Salary sacrifice in practice – Roc Technologies’ story
Roc Technologies, an IT transformation services provider, worked with Gofor to roll out salary sacrifice to all its employees in spring 2023.
What made the scheme a success?
‘The Gofor team fully supported us to realise our emission reduction targets; they understood the challenge and supported us every step of the way. Transitioning our drivers from ICE to EVs was not simple, but we had a great partnership with Gofor which delivered a great result for our business and our drivers.’
Claire Thompson, Fleet and Facilities Manager
