How to develop an electric vehicle salary sacrifice scheme

Is your organisation considering how to develop an electric vehicle (EV) salary sacrifice scheme for employees? Careful research and planning will help ensure the scheme is successful and offers great value for employees and green credentials for the business.

Where to begin when setting up an EV salary sacrifice scheme?

The first step to developing an EV salary sacrifice scheme is research. Employers should consider assessing:

• Earnings across the workforce. If the lowest-paid employee opts into the scheme, will the employer still be compliant with national minimum wage (NMW) legislation? An employee’s pay must be at or above the NMW after deductions for the scheme are taken, as well as any other salary sacrifice arrangements such as pension schemes.
• The benefits and risks. Employers should consider comparing whether benefits such as helping staff feel valued, improved ESG credentials and savings on employer national insurance (NI) contributions outweigh risks such as the upfront or ongoing costs of implementing the scheme, and how the reduction to an employee’s gross salary might affect things like their ability to get a mortgage.
• Staff turnover and average tenure. Most EV sal-sac contracts run for two to four years, so employers will need to bear in mind how long employees tend to stay in post. If an employee leaves before their vehicle leasing contract comes to an end, they will need to return the car and an early termination fee will usually need to be paid. If the employee has resigned, this fee may need to be deducted from their final pay packet, depending on the terms of the agreement. If an employee leaves for another reason, such as redundancy, the employer may be liable for the early termination fee, so it is important to consider whether this is affordable. However, many EV leasing providers offer insurance packages to cover early termination fees.
• The EV leasing partners on the market. The key areas you should take into consideration when selecting a partner include vehicle availability and choice, affordability for employees, whether early termination protection is offered, and how scalable and adaptable their schemes are. Also, look at what is included in their packages – for example, EV charger installation, MOT, maintenance and repairs.
• The charging infrastructure. According to Zapmap, there has been a 270% increase in public charging availability in the UK since 2019. However, not all employees will have off-street parking or the ability to install an EV charger at home. Employers should consider whether the charging infrastructure in their area is sufficient.

Ali Argall, business development director at Tusker, says: “For those who haven’t taken this step before, there are three main areas to consider: the features and benefits, or why they’re introducing a scheme; the day-to-day implementation costs in terms of time and effort; and what the risks might be.

“Circumstances change for employees; people leave because they want career progression. Businesses need to do their homework and look for a provider that is tried and tested and has been doing this for a long time.”

When it comes to looking for a leasing partner, Argall says it is important to consider their reputation and whether they have worked with similar businesses before.

She says: “For example, if you’re a bank, what other banks have they worked with, and what are their experiences in a particular sector or industry? Are there restrictions that would affect the structure of the scheme?

“Also, think about inclusivity. Consider what cars you might offer your £30k employee versus the CEO. Think about what the administration will be like and spend time asking [a potential EV leasing partner] the ‘what ifs?’.”

Communicating an electric vehicle scheme with employees

Once the practicalities of offering an EV sal-sac scheme have been considered and a leasing partner is chosen, organisations should consult with employees to ensure they have the necessary information to choose whether participation in the scheme is right for them – for example, what it will mean for their take-home pay, tax, and any other benefits such as their pension.

An EV leasing partner may be able to help communicate the benefits and risks of joining the scheme to employees.

Argall says: “Our aim is to give customers education and confidence so employees understand what it’s like to move to electric vehicles.

“There are a lot of myths around the journey to EV, such as charging. It’s a big-ticket item so not an overnight decision and they might have other arrangements in place. We can help employers prepare their communications and link to their benefits platforms through dual branding if need be.”

Examples of communication methods include a launch email introducing the scheme, and webinars covering what employees need to know about an EV scheme and to answer any questions they may have. An ongoing communications campaign will help regularly remind employees that the scheme is on offer if they do not decide to sign up right away.

Adjusting employment contracts

Employees entering into a salary sacrifice arrangement must either agree to vary the terms of their existing employment contract, or their employer must prepare an additional contractual agreement for the employee to sign. The contract must be altered with each change – for example if an employee wants to opt out of the scheme and return the vehicle after a period in the scheme.

Informing HMRC about an EV salary sacrifice scheme

EVs provided through a salary sacrifice scheme are subject to benefit in kind tax, as they are seen by HM Revenue and Customs (HMRC) as a company car arrangement. Each car will need to be reported to HMRC so they can be taxed at the appropriate rate.

Employers are not required to tell HMRC about their plans to offer an EV salary sacrifice scheme before it is implemented, but they will need to provide evidence of the contract variation and pay statements before and after the scheme was put in place to ensure that all tax and NI arrangements are handled compliantly.

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