Are salary sacrifice schemes for senior staff only or the whole workforce? And what are the practicalities of introducing schemes for all? Andy Bruce of Fleet Alliance tells Adam McCulloch exactly what the advantages are of adopting a broad approach
It might be tempting to imagine that a salary sacrifice scheme should only be available to the upper echelons of a company’s employees given the popular view of electric vehicles as being prohibitively expensive.
Andy Bruce, CEO at fleet management and electric car salary sacrifice specialist at Fleet Alliance, says such a perception would be ill-conceived. He says: “A salary sacrifice car scheme, especially one promoting electric cars, is an excellent employee benefit that can be made available to all employees, with certain caveats, and not one that is, or should be, restricted to company car drivers or senior staff.”
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Bruce points out that a business can offer a salary sacrifice car to any employee who qualifies for the scheme as part of the general benefits package. This enables employees at all levels of the business and in all departments.
A salary sacrifice electric car scheme can also work effectively as an attraction and retention tool, he says, and it is a popular and successful way of opening up cost-effective, greener and safer motoring.
Who is not suitable?
However, there are some employees who may not be suitable for such a scheme. For example, some lower-paid employees may find that the scheme would reduce their salary below the minimum wage and therefore rule them out of participating, as the salary deduction cannot legally reduce their take-home pay below this level.
It may also not be suitable for those on short or fixed-term contracts as the lease contracts for the vehicles are typically for a three-year period. Nor might it work for employees who are considering retiring, as they will be signing up for a long-term commitment with the leasing provider that could be longer than their projected remaining period with their employer.
Spending power
But for the vast majority of employees salary sacrifice has proven to be highly cost effective. Savings are achieved because employee spending power is boosted with funds that would otherwise be lost in tax and National Insurance Contributions (NIC) if received as salary.
There is a small company car tax bill to pay. For electric cars this is currently based on 2% of the car’s P11D value. But, overall, the tax and NIC savings should far outweigh the company car tax bill, so an employee can pay less for a new car through salary sacrifice than if they leased a vehicle privately.
And, as employees are sacrificing some of their salaries to pay for a new car, this also reduces the amount of Class 1A NICs that their employers have to pay.
Bruce says: “Salary sacrifice providers, like ourselves, offer detailed calculations showing just how much employees and employers can save.”
That provides employers with the necessary information to then decide whether to retain the savings or use them to fund investment or additional employee benefits.
Greenhouse gas targets
A salary sacrifice electric car scheme can also make a considerable contribution to a business’s plans for reducing its greenhouse gas emissions under its Environmental, Social and Governance (ESG) objectives, especially under the Scope 3 reporting level.
This covers emissions that are not produced by the company itself and are not the result of activities from owned or controlled assets but by those that it is indirectly responsible for up and down its value chain – such as leased cars.
So, by having as many electric cars as possible can certainly help the business in meeting its ESG targets.
Bruce points out that another advantage of providing electric vehicles through a salary sacrifice car scheme is the impact on the company’s so-called “grey fleet” – those cars owned by employees and periodically used on company business.
“Under a salary sacrifice electric car scheme,” he says, “if someone needs to use their car for occasional business mileage, the business can be certain that transport emissions are dramatically reduced.”
Salary sacrifice vehicles are new, regularly serviced, fit for purpose and well looked after. They are also taxed and correctly insured, with the provider’s expert teams on hand to manage on-road issues in the event of a breakdown, so the risk to the business is also greatly reduced.
How to introduce a salary sacrifice car scheme
Salary sacrifice cars are provided through a lease arrangement, which means drivers can personalise their mileage terms and decide how long to keep the car. There is also fully comprehensive insurance built-in and there are services to prevent any issues if employees leave the business or take extended time off, such as for parenthood.
Salary sacrifice providers focus on managing all the elements of the scheme, so the business can just offer a great benefit, knowing that drivers will be well looked after – usually through an online portal showing which vehicles are available and the overall cost to the employee in terms of salary forgone – and after taking delivery of the vehicle.
However, while the concept of a salary sacrifice car scheme is simple, behind the scenes there is a degree of complexity, which is usually best managed by an expert, independent provider.
Employers will need to ensure the scheme is compliant with tax rules while keeping detailed and accurate records, reminds Bruce. They also need to ensure employees are fully informed about how schemes work and relate to their personal finances.
The business must also understand and manage employee risks relating to minimum wage, sickness, parenthood cover, and people leaving the business.
Once a car is delivered, the business will also need to provide updates to HM Revenue and Customs so that employees’ tax codes can be altered and vehicle information can be used to accurately calculate their company car tax bill.
Given the degree of extra administration, it is vital to find the best salary sacrifice partner to run the scheme so that additional administrative tasks are taken care of, the whole process runs smoothly and there is no additional burden on the business.
Drivers’ responsibilities
As with any car that hasn’t been actually purchased by the driver, scheme participants need to be aware that there will be penalties if they do not look after their cars and hand them back in poor condition. They also need to keep within the mileage they agreed in their contract, otherwise they could face excess mileage charges.
Bruce points out that to ensure the scheme is a success, a business will need to put effort in to marketing the salary sacrifice car offer to staff and raising awareness of the scheme benefits.
This, he says, may range from sending emails and hosting driving days to educating employees about how salary sacrifice works and answering technical questions about the scheme.
Much of the work can be done by the salary sacrifice supplier, although business managers may need to be on hand to facilitate any initiatives.
Setting up a salary sacrifice car scheme is definitely worth the time and effort involved as the scheme offers significant savings and incentives for a business and its drivers.
With the right programme in place, managed by a reputable and experienced provider, employees get more for their money, and employers have a cost-efficient benefit that will enhance employee satisfaction and encourage new staff to join the company.
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